First Bank of Canada rate hike in 3 years
The headlines are to get your attention. It’s incredible how many calls and emails our office received after the Bank of Canada governor, Tiff Macklem, raised the Bank Rate by 0.25% to 4.70% on October 28. This is the 7th of 8 regularly scheduled rate announcement dates. The next one is December 9.
The mainstream media is missing a few things or at least I am not seeing a lot of coverage about these things..
- This is the first rate hike since July 2023.
- This rate hike directly affects Variable rate mortgages.
- Most variable rate borrowers have a rate of Prime less X. This can vary but it’s anywhere from Prime less 0.25% to Prime less 1.10%.
- Prime rate does not directly affect Fixed mortgage rates.
- Historically, fixed rates already go up or down before the Prime rate.
Let’s talk about fixed rates for a moment.
Fixed rates started to increase earlier this year after the start of the Iran USA war. The uncertainty is what caused this. Institutional investors get nervous when there is uncertainty in the world. That has subsided a little but it has not gone away. Throw in the US midterm elections and our own highly uncertain Canadian economy and you end up with what we see today.
Fixed mortgage rates are more directly priced from the Canadian Government Bond yields. Here’s what the Big Six Bank economists are forecasting…
5-Year Government of Canada Bond Yield Forecasts
| Bank | Near-Term Target (End of 2026) | 2027 Long-Term Path | Yield & Fixed Mortgage Rate Outlook |
| TD | 3.50% | Gradual Downward Edge (To ~3.05%) | Yield Relief View: Believes the market overreacted to inflation risks. Expects yields to stabilize through winter and slowly ease toward 3% by late 2027 as global energy spikes soften. |
| CIBC | 3.60% – 3.70% | Flat / Minor Inversion | Sustained Plateau: Projects that the front end of the curve will rise with their anticipated rate hikes, keeping the 5-year yield stuck stubbornly in the 3.50% to 3.70% window for most of 2027. |
| RBC | 3.75% | Upward Friction (To ~4.00%+) | Higher-for-Longer: Expects heavy upward pressure to continue. Notes that larger federal deficits and a hawkish U.S. Federal Reserve will keep global bond markets demanding a high cost of capital. |
| Scotiabank | 3.80% | Elevated Volatility (~3.75% – 4.10%) | Aggressive Tightening: Foresees sticky headline inflation driving the central bank to 3.25%, which will structurally prevent 5-year yields from falling below current market pricing anytime soon. |
| National Bank | 3.65% | Neutral Bound (~3.40%) | Balanced Baseline: Anticipates near-term friction from geopolitical risk premium in oil, followed by stabilization near the historical structural neutral yield. |
| BMO | 3.45% | Cyclical Decline (To ~3.10%) | Dovish Outlook: Believes a cooling domestic labor market and cooling real estate baseline will ultimately drag down long-term yields much faster than peers anticipate. |
Economists and myself included, believe we need lower interest rates. We cannot expect Canadians to absorb the massive rate hikes that we saw in 2022- 2023. Rates tripled in that time. This contributed to falling real estate prices and economic growth.
But not all Economists are forecasting for the same rate cuts. Here’s what the Big Six Bank Economists are saying.
Big 6 Banks: Bank of Canada Policy Rate Forecasts
| Bank | Next Meeting Expectation (Dec 9, 2026) | Projected End of 2027 | High-Level Institutional Outlook |
| CIBC | Pause (Hold at 2.50%) | 2.75% | Primary View: Believes the core inflation path won’t accelerate as aggressively as the BoC fears. Pulls forward a tightening path but assumes a peak cap at 2.75% if energy spikes ease. |
| RBC | Hike (To 2.75%) | 3.25% | Hawkish Bias: Views the recent move as preventative risk management. Focuses closely on strong current GDP growth and supply/demand drivers that will push interest rates higher through 2027. |
| Scotiabank | Hike (To 2.75%) | 3.25% | Most Aggressive: Anticipates immediate momentum. Their modeling favors multiple subsequent quarter-point lifts to completely eliminate monetary accommodation in response to resilient consumer indicators. |
| National Bank | Pause/Hike Split | 2.75% | Moderate Tightening: Anticipates short-term friction from imported input pricing and refinery margins but predicts a cyclical peak aligned with the historical neutral rate range. |
| TD | Pause (Hold at 2.50%) | 2.50% | Conservative Hold: Expects the central bank to treat this hike as “insurance” to evaluate pass-through effects. Projects a prolonged pause through 2027 due to ongoing U.S. tariff friction and weak jobs numbers. |
| BMO | Pause (Hold at 2.50%) | 2.25% | Dovish Outlier: Argues that while the BoC is laser-focused on headline energy indices, a sluggish housing market and a soft labor baseline will eventually force a modest reversal by late 2027. |
BOTTOM LINE.
The economists are giving us mixed opinions. This uncertainty is to be expected based on the global and national events. It also means we shouldn’t expect too much movement with rates. CIBC, is one of the better banks for giving us forecasts and it sure does look like they expect fixed mortgage rates to fall next year.
As always, if you need help or just want to discuss. Call our office. We are happy to help.
Your best interest is my only interest. I reply to all questions and I welcome your comments. Like this article? Share with a friend.
Steve Garganis: 416-224-0114; steve@canadamortgagenews.
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Steve Garganis View All
As an industry insider, Steve will share info that the BANKS don't want you to know. Steve has appeared on TV's Global Morning News, CBC's "Our Toronto" and The Real Life TV show. He's also been quoted in several newspapers such as the Globe and Mail, The Toronto Star, The Vancouver Sun, The Star Phoenix, etc.