Interest rate cuts will be the story of 2024 — what that means for mortgages and more
The Bank of Canada overnight rate started 2023 at 4.25 per cent and will finish the year at five per cent, for a rise of 0.75 per cent after a rise of four per cent in 2022. I believe we will see a two per cent decline in rates by the end of 2024, back to an overnight rate of three per cent. The impacts of this decline will be the story of 2024.
Just for fun and to really stick my neck out there, here is my detailed prediction for the central bank’s moves in 2024: Jan. 24: no rate change; March 6: no rate change; April 10: 25-basis-point (bps) drop; June 5: 50 bps drop; July 24: 50 bps drop; Sept. 4: 25 bps drop; Oct. 23: 25 bps drop; and Dec. 11: 25 bps drop.
These predictions are based on a combination of factors, including the negative direction of the Canadian economy, Canada’s interdependency with other central banks, specifically in the United States and European Union, and how the Bank of Canada has historically made rate moves. It is generally slow to make a change in direction, often starting changes later than it should have (in hindsight), but it tends to move quickly once it finally makes that shift.
The speed at which rates went up is certainly a factor on the speed at which they will then come down. Having said that, we are not returning to the super-low interest rate world that we found ourselves in during 2020 and 2021.
It is important to remember that overnight rates are only part of the interest rate equation. As I write this, the five-year Canadian bond yield has had a much different path than overnight rates in 2023. Keep in mind that these rates move with the market, so they tend to move in advance of expected activity.
The five-year Canadian bond yield started the year at 3.42 per cent and was 3.27
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