Economic and future forecasting typically involves the calculation and analysis of a number of key variables such as inflation, interest rates, consumer confidence and unemployment. In today’s unconventional and unpredictable environment, additional considerations are being added to the mix to account for the impacts of shifting priorities and economic realities here at home and around the globe.


Key interest rates determined by the Bank of Canada (BoC) are one of the most important factors related to economic activity. The state of the economy, inflation, household debt and commodity prices are just some of the factors that play a role in helping the BoC determine whether interest rates will rise, fall or remain the same. 


In 2020, the BoC introduced a series of rate reductions outside of its normal scheduled announcements, dropping the key interest rate by a total of 150 basis points in an effort to help offset the damaging effects of the COVID-19 pandemic. Although the worst year in recent memory is now behind us, we’re still overwhelmed by an invisible and deadly disease and, with economic growth at a near standstill, many are wondering what’s in store for the year ahead. 


Bank of Canada 

On January 20th, 2021, the first scheduled meeting of the year, the BoC announced it would maintain its target overnight rate at 0.25%. This status quo was not unexpected, as efforts to help support economic recovery remain front and centre


Estimates on the timing and extent of that recovery will be driven almost exclusively by the global pandemic. With new waves of infections, the arrival of new variants, and ongoing restrictions and lockdowns, the first quarter of the year so far has already resulted in negative growth. The outlook for the second quarter is a bit brighter, however, with the anticipation of lifted restrictions, and renewed consumer confidence and consumption. Ongoing government financial relief measures, and the arrival and administration of long-awaited vaccines should also help bolster medium-term growth. 


According to economists

In a recent interest rate forecast report, a third of Canadian economists predicted that current rates will hold for three years. In addition, 75% of those questioned don’t feel that current economic conditions have deteriorated enough to warrant another policy rate.


The outlook from BNN Bloomberg’s monthly survey of economists also reveals that the slow start to Canada’s economy in 2021 will not be significant enough to incite the nation’s central bank to raise interest rates nor disrupt the predicted recovery over the next few years. 


In a January 2021 Reuters poll of over 40 economists, the sentiment is much the same, revealing that Canada’s economy will stall during the first quarter of the year before showing signs of improvement. The outlook from the Conference Board of Canada also confirms that the Bank’s January interest rate decision is consistent with their forecast of rates remaining unchanged beyond the short-term. Further corroboration comes from analysts in FocusEconomics Consensus Forecast, who expect we’ll see the target overnight rate unchanged in 2021 and 2022. Overall, predictions suggest that the BoC will wait until the second quarter of 2023 before lifting its overnight rate.


Impacts for homebuyers 

A low interest rate environment means borrowing costs are more affordable and buying power is stronger. Generally speaking, this is good news for would-be homebuyers, but the lure of low interest rates doesn’t eliminate the importance of buying a home you can afford not only now, but also into the future. 


The Canadian real estate market has not faltered in the face of COVID-19, but extremely low housing supply has sent house prices skyrocketing and pushed homebuyer budgets to the limit. Buying a home isn’t just about getting the best rate, however, so if you’re in the market to buy a home, speak with a mortgage agent who will provide expert advice when you need it most.


With the prospect of a long and still-uncertain road ahead, it would appear that the BoC will hold interests rate at or near 0.25% until 2023. Still, so much of what lies ahead depends on the availability and effective distribution of COVID-19 vaccines. Immunization represents a significant step towards helping the Canadian economy get back on its feet, with the prospect of better days ahead. 


Have questions about interest rates? Answers are a call or email away!