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The Bank of Canada has recently reduced interest rates by 0.5%
Both TD Bank and CIBC predict further rate cuts totaling 175 basis points (bps) by the end of 2025, lowering the overnight rate to 2.75%. This forecast is more aggressive compared to other major banks like BMO, Scotiabank, and RBC, which expect smaller reductions.
TD and CIBC's optimistic predictions are based on economic indicators, primarily inflation and economic growth. They expect the Bank of Canada to proceed with caution, with pauses between cuts in response to economic data. The latest Monetary Policy Report indicates a downtrend in GDP growth and stable inflation targets, supporting the case for further rate cuts.
TD Bank anticipates the overnight rate to drop even further to 2.25% by 2026, aligning with historical trends where the Bank of Canada has implemented significant and extended rate cuts in response to economic conditions.
If the forecasts by TD and CIBC materialize, the prime rate for most lenders would decrease to 4.95%, offering significant savings for variable-rate borrowers. This would result in substantial annual savings on mortgage payments, potentially reviving interest in variable-rate mortgages, which saw a decline during the rate hikes but have started to regain popularity as rates begin to ease. For Hosper Mortgage shareholders, the predicted rate cuts present a promising opportunity. Lower borrowing costs can lead to increased mortgage demand and higher loan origination volumes, boosting potential returns on investment.
This blog was inspired by and based on the article "Will the Bank of Canada deliver another 175 bps in rate cuts? TD and CIBC say yes" from Canadian Mortgage Trends.