Bank of Canada's planned rate cuts set to ease borrowing costs
British Columbia homeowners facing high interest rates could see some relief in the coming months, according to a new forecast from Bloomberg Economics.
The financial research service predicted that interest rates for indebted British Columbians could drop by 1.5 percentage points to 3.25% by the end of 2025.
Bloomberg Economics released its interest rate estimates for central banks globally on Sunday, noting that the Bank of Canada (BoC) was the first among the Group of Seven central banks to lower its benchmark overnight interest rate.
The central bank cut its rate from 5% to 4.75% last month, marking its first reduction since July 2023.
“(In Canada), robust domestic demand and indicators suggesting a near-term acceleration in spending mean the pace of rate cuts this year should be slow,” said Bloomberg analyst Stuart Paul. “We expect the BoC to cut policy rates at a quarterly pace, bringing the overnight rate target to 4.25% at year-end.”
Paul anticipates two more rate cuts this year, in September and December, with a target interest rate of 3.25% by the end of 2025.
This decrease could translate to lower interest rates on mortgages and other loans for B.C. residents. Currently, many homeowners are facing rates around 5% for a five-year fixed-term mortgage.
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However, Paul also cautioned about potential risks associated with aggressive rate reductions.
“The potential for further downside inflation surprises skew risks for the policy rate lower,” he said. “But swift rate cuts — amid population growth as a consequence of immigration — could re-energize home prices and risk a secondary inflation surge.”
Bloomberg’s forecast comes as central banks worldwide adjust their monetary policies post-pandemic.
Japan is the only major central bank not expected to reduce interest rates over the next 18 months, maintaining an overnight rate of just 0.1% due to its stagnant economy. In contrast, the US Federal Reserve, which currently has its rate set at 5.5%, is projected to reduce it to 4% by the end of 2025.
Back in 2020, during the height of the pandemic, homeowners could secure a five-year fixed interest rate on mortgages for less than 2%. Today, those rates hover around 5%, with RBC offering a five-year fixed mortgage rate of 4.84%.
The BoC’s overnight benchmark rate influences banks’ interest rates for household mortgages, commercial loans, lines of credit, and credit card debts. The next BoC interest rate announcement is scheduled for July 24.
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