Latest News

4 Jun

Another Jumbo Rate Hike, Signalling More To Come

Latest News

Posted by: Gabriel Da Silva

Bank of Canada Leaves Expectations For 2022 Rate Hikes Intact

The Governing Council of the Bank of Canada raised the overnight policy rate by a full 50 basis points once again today, marking the third rate hike this year. The two back-to-back half-point increases are without precedent, but so were the dramatic pandemic rate cuts in the spring of 2020. Indeed, with the surge in Canadian inflation to 6.8% in April, the Bank of Canada is still behind the curve. The chart below shows that inflation remains well above the Bank’s forecasts. Today’s press release suggests they now estimate that inflation rose again in May and could well accelerate further.

Today’s policy statement emphasized that “As pervasive input price pressures feed through into consumer prices, inflation continues to broaden, with core measures of inflation ranging between 3.2% and 5.1%. Almost 70% of CPI categories now show inflation above 3%. The risk of elevated inflation becoming entrenched has risen. The Bank will use its monetary policy tools to return inflation to target and keep inflation expectations well anchored.”

“The increase in global inflation is occurring as the global economy slows. The Russian invasion of Ukraine, China’s COVID-related lockdowns, and ongoing supply disruptions are all weighing on activity and boosting inflation. The war has increased uncertainty and is putting further upward pressure on prices for energy and agricultural commodities. This is dampening the outlook, particularly in Europe. In the United States, private domestic demand remains robust, despite the economy contracting in the first quarter of 2022.”

The Bank said that “Canadian economic activity is strong and the economy is clearly operating in excess demand. National accounts data for the first quarter of 2022 showed GDP growth of 3.1 percent, in line with the Bank’s April Monetary Policy Report (MPR) projection. Job vacancies are elevated, companies are reporting widespread labour shortages, and wage growth has been picking up and broadening across sectors. Housing market activity is moderating from exceptionally high levels. With consumer spending in Canada remaining robust and exports anticipated to strengthen, growth in the second quarter is expected to be solid.”

Bottom Line

The Bank of Canada couldn’t be more forthright. The concluding paragraph of the policy statement is as follows: “With the economy in excess demand, and inflation persisting well above target and expected to move higher in the near term, the Governing Council continues to judge that interest rates will need to rise further. The policy interest rate remains the Bank’s primary monetary policy instrument, with quantitative tightening acting as a complementary tool. The pace of further increases in the policy rate will be guided by the Bank’s ongoing assessment of the economy and inflation, and the Governing Council is prepared to act more forcefully if needed to meet its commitment to achieve the 2% inflation target.”

The Bank of Canada has told us we should expect at least another 50 bps rate hike when they meet again on July 13. It could even be 75 bps if inflation shows no sign of decelerating. The Bank estimates that the overnight rate’s neutral (noninflationary) level is 2%-to-3%. Traders currently expect the policy rate to end the year at roughly 3%.

This was a very hawkish policy statement. The central bank is defending its credibility and will undoubtedly continue to tighten monetary policy aggressively.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

8 Apr

Labour Market Tightens Further

Latest News

Posted by: Gabriel Da Silva

Statistics Canada released the March Labour Force Survey this morning, reporting a 72,500 jobs gain from the whopping 337,000 surge in February. Employment increased in both the goods- and services-producing sectors. Gains were concentrated in Ontario and Quebec. The unemployment rate fell to 5.3%, its lowest monthly rate since the data series was released in 1976, compared to 5.5% in February.

This adds more fuel to the notion that the Bank of Canada is behind the curve and will likely raise the overnight policy rate by 50 basis points next week. Indeed, Canada’s 2-year government note yield spiked on the news to 2.46%, up 2.38% at yesterday’s close.

Swap markets are now predicting a 75% probability of a half-point hike next week and an overnight rate of 3% a year from now. The overnight rate was 1.75% in February 2020, just before the pandemic began. Since then, inflation has surged from just over 2% to 5.7% in February. The March inflation data will be released on April 20, and it is widely expected to rise further. Indeed, the gauge of global food prices inflation is currently at a record high, exacerbated by the disruptions associated with the Ukraine war.

Adding to inflationary pressure is the rise in Canadian wage rates coming from the excess demand for labour. Total hours worked rose 1.3% in March. Average hourly wages increased 3.4% on a year-over-year basis, up from 3.1% in February. Illustrating the imbalances between labour supply and demand, employment gains since September (+463,000; +2.4%) have outpaced growth in the size of the population aged 15 and older (+236,000; +0.8%) during the same period.

Bottom Line

This Labour Force Survey was conducted in mid-March, after the February 24th start of the Ukrainian War. Since then, many commodity prices have surged, especially oil, gasoline, aluminum, wheat and fertilizer. This has boosted inflation worldwide, dampening consumer and business confidence and reducing family purchasing power. The Bank of Canada’s recent Business Outlook Survey shows that businesses expect inflation to continue for two years.

The newly released Bank of Canada Survey of Consumer Expectations shows record-high short-term inflation expectations. Despite more significant concerns about inflation today, longer-term expectations have remained stable and are below pre-pandemic levels. This suggests that long-term inflation expectations remain well-anchored, and those survey respondents believe the current rise in inflation will not last.

This view is predicated on the Bank of Canada tightening monetary policy significantly. All messaging from the Bank confirms that it will provide this by raising the overnight rate to around 3% over the next year and by quantitative tightening, reducing its holdings of Government of Canada bonds.

Anecdotal evidence suggests that housing markets have already responded to rising mortgage rates. Supply has increased, and multiple-bidding activity has weakened.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

21 Mar

Inflation Pressures Accelerating

Latest News

Posted by: Gabriel Da Silva

StatsCanada today reported that consumer prices rose 5.7% year-over-year in February, up again from the prior month’s 5.1% rise. This was the largest gain since August 1991 (+6.0%).

This was no surprise, as the Ukraine War has stepped up inflation pressure worldwide. The US CPI rose a whopping 7.9% last month (see chart below).
Price increases were broad-based in February, pinching the pocketbooks of Canadians. Consumers paid higher prices for gasoline and groceries in February 2022 compared with the same month a year earlier. Shelter costs continued to trend higher, rising at the fastest year-over-year pace since August 1983.

Excluding gasoline, the Consumer Price Index (CPI) rose 4.7% year over year in February, surpassing the gain in January (+4.3%) when the index increased at the fastest pace since its introduction in 1999.

On a monthly basis, the CPI rose 1.0% in February, the most significant increase since February 2013, following a 0.9% increase in January. On a seasonally adjusted monthly basis, the CPI rose 0.6%.

Gasoline Prices Surge Amid Geopolitical Conflict
Canadian motorists paid 32.3% more at the pump compared with February 2021.

Monthly gasoline prices increased 6.9% amid geopolitical conflict in Eastern Europe and the Middle East, as uncertainty surrounding the global oil supply put upward pressure on prices.

Similarly, prices for fuel oil and other fuels increased 8.5% month-over-month following higher international energy prices.

Grocery Prices Shot Up Again
Prices for food purchased from stores (+7.4%) rose faster in February than in January (+6.5%). This is the most significant yearly increase since May 2009. Higher input prices and heightened transportation costs continued to contribute to inflationary pressure in February.

Price growth for meat (+11.7%), including fresh or frozen beef (+16.8%) and chicken (+10.4%), was higher year over year in February than in January (+10.1%).

Shelter Costs Rise At Fastest Pace Since 1983
In February, shelter costs rose 6.6% year over year, the fastest pace since August 1983. Higher costs for both owned accommodation (+6.2%) and rented accommodation (+4.2%) increased.

Homeowners’ replacement cost (+13.2%), which is related to the price of new homes, and other owned accommodation expenses (+14.3%), which includes commissions on the sale of real estate, remained elevated year over year. In contrast, mortgage interest cost (-6.0%) moderated the shelter index on a year-over-year basis.

According to the Canadian Mortgage and Housing Corporation, improved economic and demographic conditions over the past year, including youth employment recovery and resumption of international migration to Canada, supported rental demand. This, in part, contributed to higher rent (+4.2%) prices year over year in February.

Bottom Line

Inflation has exceeded the Bank of Canada’s 1%-to-3% target band for 11 consecutive months. Other central banks have already begun to hike overnight rates from their effective lower bound introduced in March 2020.

Today, the U.S. Federal Reserve hiked the overnight policy target for the first time since 2018 by 25 basis points and signalled that it expects to hike rates six times more this year.

The global geopolitical tensions and rising risk of a drawn-out conflict exacerbate inflation and supply bottlenecks, delaying a return to sub-3% inflation.
Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

2 Mar

Bank of Canada Starts Hiking Rates

Latest News

Posted by: Gabriel Da Silva



Bank of Canada Starts Hiking Rates, Signalling More To Come

The Governing Council of the Bank of Canada raised the overnight policy rate target by a quarter percentage point in a widely expected move and signalled that more hikes would be coming. This is the first rate hike since 2018. In a cautious stance, the Bank announced it was continuing the reinvestment phase, keeping its overall Government of Canada bonds holdings on its balance sheet roughly stable.

The Bank’s press release highlighted the major new source of uncertainty provided by the unprovoked invasion of Ukraine by Russia and suggested that it is a new source of substantial inflation pressure. Prices for oil, metals, wheat and other grains have skyrocketed recently. Moreover, this geopolitical distention negatively impacts confidence worldwide and adds new supply disruptions that dampen growth. “Financial market volatility has increased. The situation remains fluid, and we are following events closely.”

The Bank commented that economies have emerged from the impact of the Omicron variant more quickly than expected. Demand is robust, particularly in the US.

“Economic growth in Canada was very strong in the fourth quarter of last year at 6.7%. This is stronger than the Bank’s projection and confirms its view that economic slack has been absorbed. Both exports and imports have picked up, consistent with solid global demand. In January, Canada’s labour market recovery suffered a setback due to the Omicron variant, with temporary layoffs in service sectors and elevated employee absenteeism. However, the rebound from Omicron now appears to be well in train: household spending is proving resilient and should strengthen further with the lifting of public health restrictions. Housing market activity is more elevated, adding further pressure to house prices. Overall, first-quarter growth is now looking more solid than previously projected.”

Canadian CPI inflation has risen to 5.1%, as expected in January, well below the 7.5% level posted in the US.” Price increases have become more pervasive, and measures of core inflation have all risen. Poor harvests and higher transportation costs have pushed up food prices. The invasion of Ukraine is putting further upward pressure on prices for both energy and food-related commodities. All told, inflation is now expected to be higher in the near term than projected in January. Persistently elevated inflation increases the risk that longer-run inflation expectations could drift upwards. The Bank will use its monetary policy tools to return inflation to the 2% target and keep inflation expectations well-anchored.”

The final paragraph of the Bank’s press release speaks with great clarity: “The policy rate is the Bank’s primary monetary policy instrument. As the economy continues to expand and inflation pressures remain elevated, the Governing Council expects interest rates will need to rise further. The Governing Council will also be considering when to end the reinvestment phase and allow its holdings of Government of Canada bonds to begin to shrink. The resulting quantitative tightening (QT) would complement the policy interest rate increases. The timing and pace of further increases in the policy rate, and the start of QT, will be guided by the Bank’s ongoing assessment of the economy and its commitment to achieving the 2% inflation target.”



Bottom Line

The Bank of Canada has made a clear statement regarding the outlook for a normalization of interest rates. We expect a series of rate hikes over the next year. Expect another 25 basis point increase following the next meeting on April 13. The increased uncertainty and volatility arising from the war in Ukraine is front of mind worldwide. Still, it will not deter central banks from tightening monetary policy to forestall an embedded rise in inflation expectations.

The Bank of Canada has postponed Quantitative Tightening, for now, a prudent move in the face of geopolitical uncertainty.


Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

5 Feb

No Wonder The Bank of Canada Didn’t Hike Interest Rates Last Month

Latest News

Posted by: Gabriel Da Silva


Statistics Canada released the January Labour Force Survey this morning, reporting a much more extensive than expected decline in jobs last month. The Omicron shutdowns and restrictions took a much larger toll in Canada than expected, as employment fell 200,100 in January and the unemployment rate rose 0.5 percentage points to 6.5%.

Ontario and Quebec drove January employment declines, and accommodation and food services was the hardest-hit industry. In January, youth and core-aged women, who are more likely than other demographic groups to work in industries affected by the public health measures, saw the most significant impacts. Goods-producing sectors recorded a gain, led by construction.

We did not expect the Bank of Canada to hike rates in January because of the risk that Omicron restrictions would batter the economy at least temporarily. If we see a reversal in these declines in February, rate hikes could well commence. The Bank of Canada’s next policy-decision date is March 2. But we won’t see the Labour Force Survey for February until March 11. This could postpone lift-off by the BoC until the next meeting on April 13, when we will have both the February and March employment reports. This would put the first rate hike in April, exactly when the Bank’s forward guidance initially told us the hikes would begin.

The timing of lift-off is subject to the incoming data. It is troubling that the US employment report, also released today for January, was surprisingly strong, in contrast. To be sure, the US did not impose Canadian-style Omicron restrictions last month, but the Omicron wave did depress US economic activity. It was expected to translate into weak hiring. It didn’t. 467,000 jobs were created in the US, and massive upward revisions suggest a fundamentally very strong US economy. With US companies desperate to hire and the most significant issue being the lack of qualified staff, wages are rising more sharply south of the border.

Canadian employment remains just over 30,000 above pre-pandemic levels, and the country has a strong track record of bouncing back after prior waves of the virus. Yet, today’s jobs numbers suggest a tough start for the Canadian economy in the first quarter. Hours worked — which is closely correlated to output — fell 2.2% in January, and the number of employees who worked less than half their usual hours jumped by 620,000. January also saw the first drop in full-time employment — down 82,700 — since June.

Average hourly wages grew 2.4% (+$0.72) on a year-over-year basis in January, down from 2.7% in November and December 2021 (not seasonally adjusted). The January 2022 year-over-year change was similar to the average annual wage growth of 2.5% observed in the five years from 2015 to 2019.

The concentration of January 2022 employment losses in lower-wage industries did not significantly impact year-over-year wage change, partly because employment in these industries experienced similar losses in January 2021 as a result of the third wave of COVID-19.




Bottom Line

There remains uncertainty regarding when (not if) the Bank of Canada will begin to renormalize interest rates. Canadian swaps trading suggests markets are still expecting a hike on March 2, with five more hikes over the next year. Potential homebuyers are certainly anxious to get in under the wire.


Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

8 Dec

Bank of Canada Leaves Expectations For 2022 Rate Hikes Intact

Latest News

Posted by: Gabriel Da Silva


The Bank of Canada decided to keep its target for the overnight rate at 0.25%, in line with forecasts and to maintain its forward guidance, which sees a rise in the overnight rate sometime in the middle quarters of 2022. Until then, policymakers vowed to provide an adequate degree of monetary stimulus to support Canada’s economy and achieve the inflation target of 2%. On the price front, the ongoing supply disruptions continue to support high inflation rates, but gasoline prices, which have been a significant upside risk factor, have recently declined. Still, the BoC expects inflation to remain elevated in the first half of 2022 and ease towards 2% in the second half of the year. Finally, recent economic indicators suggested the economy had considerable momentum in Q4, namely in the labour and housing markets. Still, the omicron variant of the coronavirus and the devastation left by the floods in British Columbia has added to downside risks.The Bank’s press release went on to say, “The Governing Council judges that in view of ongoing excess capacity, the economy continues to require considerable monetary policy support. We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2% inflation target is sustainably achieved. In the Bank’s October projection, this happens sometime in the middle quarters of 2022. We will provide the appropriate degree of monetary policy stimulus to support the recovery and achieve the inflation target.”

In October, the Bank ended its bond-buying program and is now in its reinvestment stage. It maintains its Government of Canada bonds holdings by replacing securities as they mature.

Bottom Line

Traders continue to bet that the Bank of Canada will hike interest rates by 25 basis points five times next year. This would take the overnight rate from 0.25% to 1.5%. I think this might be overly hawkish, expecting a more cautious stance of three rate hikes next year to a year-end level of 1.0%. This expectation has already had an impact on economic activity. According to local real estate boards reporting in the past week, November home sales were boosted by buyers hoping to lock in mortgage rates before they rise further next year.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
25 Aug

What Does High Inflation Rates Mean for Mortgage Rates?

Latest News

Posted by: Gabriel Da Silva


Canada’s inflation rate came in above expectations last week, rising to its highest level in more than a decade.

If above-target inflation persists, it could have ramifications for homeowners in the form of shifting rate-hike expectations.

Canada’s inflation rate came in burning hot at 3.7% for July, according to data released by Statistics Canada. That’s the third consecutive monthly inflation reading that has come in above the Bank of Canada’s neutral range of 1.75% to 2.75%, which is the range needed to support the economy at full employment/maximum output while keeping inflation under control.

But the Bank of Canada continues to believe that elevated consumer prices will prove temporary and are largely the result of an economy recovering from the pandemic-induced slump.

“…inflation is likely to remain above 3% through the second half of this year and ease back toward 2% in 2022, as short-run imbalances diminish and the considerable overall slack in the economy pulls inflation lower,” the Bank said following last month’s interest rate decision. “The factors pushing up inflation are transitory, but their persistence and magnitude are uncertain and will be monitored closely.”

More recently, Bank of Canada Governor Tiff Macklem reaffirmed the messaging that everything is under control in a July 29 Financial Post column. “The Bank of Canada remains firmly committed to keeping inflation low, stable and predictable,” he wrote. “Even with the gyrations caused by the pandemic, inflation has averaged pretty close to target through the past few years to today. You can be confident that we will keep the cost of living under control as the economy reopens.”

But the central bank can only allow high inflation to persist for so long before a policy response is required.

“The Bank of Canada may be willing to tolerate higher inflation while the economy is still re-opening and recovering from the health shock, but it will respond to more lasting price pressures by reducing monetary accommodation,” wrote TD Bank senior economist James Marple in a recent post. “In the near-term, asset purchases are likely to continue to be pared back, with rate hikes likely to follow late next year.”

At the Bank’s last rate decision meeting in July, it announced that it was reducing its bond-buying program to $2 billion per week from $3 billion.

At the height of the pandemic, the BoC embarked on a quantitative easing program in which it purchased at least $5 billion worth of bonds each week to flood the market with liquidity, in turn keeping 5-year bond yields—and by extension, 5-year fixed mortgage rates—lower than they otherwise would be.

Average mortgage rates remain slightly above their all-time lows reached in December. But the question is, for how much longer?

The Timing of Future Rate Hikes

Those concerned about imminent rate hikes can take solace in the Bank of Canada’s repeated forecast that rates won’t increase until the second half of next year.

We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2% inflation target is sustainably achieved. In the Bank’s July projection, this happens sometime in the second half of 2022,” read the BoC’s statement from its July rate meeting.

The bond market’s read on future rate hikes is that consumers can expect one quarter-point rate hike over the next year, which would take the BoC’s overnight lending rate from its current record low of 0.25% to 0.50%.

And despite the latest high inflation figures, the bond market is actually forecasting one less rate hike over the next two years compared to a couple of months ago—it now expects three 25-bps hikes over the next two years, down from four. Looking three years out, the Bank of Canada is expected to deliver five quarter-point rate hikes in total, bringing the overnight rate to 1.50%.

This would cause prime rate to increase, leading to higher monthly payments for many borrowers with variable-rate mortgages. For those with fixed-payment variable mortgages, the amount of their payment going towards paying down the principal will decline, and the amount going towards interest will increase.

If prime rate was to rise 125 basis points over the next three years, the average mortgage payment could increase by approximately $180 a month, or $2,172 a year, based on today’s average mortgage amount and the lowest variable rates available nationally.

Borrowers with fixed-rate mortgages would not be immediately impacted by rising rates until their mortgage comes up for renewal at the end of their term, or unless they choose to refinance.

“While we are not overly concerned of a payment shock for renewals, the increase in mortgage rates will certainly impact purchasing power for many,” economists from National Bank of Canada wrote in a recent note.


8 May

First-Time Home Buyer Incentive 2.0 Now Available

Latest News

Posted by: Gabriel Da Silva

Long-awaited tweaks to the government’s First-Time Home Buyer Incentive came into effect on Monday.

Nearly five months after the changes were first proposed, the Department of Finance and Canada Mortgage and Housing Corporation (CMHC) have enhanced the eligibility criteria for buyers in Toronto, Vancouver and Victoria.

As a recap, the FTHBI is a shared-equity program whereby the government contributes between 5% and 10% of a first-time buyer’s down payment, and shares in any increase or decrease in the home value until the loan is repaid. The buyer doesn’t need to make any monthly payments, though the loan must be repaid after 25 years or when the home is sold.

The new eligibility requirements include:

  • the maximum eligible household income has been raised to $150,000 (an increase from $120,000)
  • participants can borrow up to 4.5 times their household income, up from the current four times.

The changes are limited to those living in the three cities noted above, while the original criteria continue to apply to those living in the rest of the country.

“Our government recognizes that making the choice to own for the first time is a challenge, especially in major markets where housing costs are rising fastest,” said Adam Vaughan, Parliamentary Secretary to the Minister of Families, Children and Social Development and the Minister responsible for the CMHC. “To that end, the new enhancements under the Incentive increases the eligibility of the program in Toronto, Vancouver and Victoria.”

What do the FTHBI changes mean?

The increase in the maximum household income and borrowing limit means first-time buyers wanting to participate in the program can now theoretically qualify for a purchase price up to $722,000, up from roughly $505,000 for those under the original requirements.

This comes at a time when the average house price has soared to $716,000, according to March data from the Canadian Real Estate Association. Even without the high-priced markets of the Greater Toronto and Vancouver areas, the national average price still stands at $556,828.

The question, of course, is whether the changes will actually assist first-time buyers struggling with affordability as prices continue to rise nationwide.

“No. The program isn’t really assistive to first-time buyers,” says Paul Taylor, President and CEO of Mortgage Professionals Canada. “Even with the increased 4.5 times income, all eligible participants would actually be able to borrow more using a traditional 5% down insured mortgage. As such, it won’t really create any new market entrants. It will provide an option for those who already qualify, in very specific parameters, to reduce their monthly payments at the tradeoff of home equity.”

Taylor told CMT that the program is true to its name, being an “incentive” program as opposed to being “assistive.”

“The government is incentivizing first-time buyers to take on less debt and to reduce their monthly payments, but the tradeoff is reduced purchasing capacity and government co-ownership,” he added, saying the number of borrowers eligible to actually qualify for the new maximum purchase price of $722,000 “will be very small.”

19 Feb


Latest News

Posted by: Gabriel Da Silva




Starting a new business is not easy, but having the right team working with you is key. We are off to a great start for 2021, accomplishing the first yearly award level in the month of January. In addition, ranking in the Top 50 out of more than three thousand agents across Canada for monthly revenue.

I would like to thank all the team members at DLC-Forest City Funding for all their support I have received in this new business venture.

I would also like to thank all my clients who have trusted me with their mortgage needs.


Gabriel Da Silva
Dominion Lending Centres – Forest City Funding
Commercial & Residential Mortgage Agent
Lic.# 10671
Independently owned and operated.

17 Feb

Could Mortgage Rates Start to Rise Sooner than Expected?

Latest News

Posted by: Gabriel Da Silva


While Canada’s economy recorded its largest-ever annual GDP drop of 5.1% last year, it’s also on track to post a comeback in Q4, which could force the Bank of Canada’s hand in reining inflation in sooner than anticipated.

“That carries potentially strong policy implications for the Bank of Canada that is increasingly looking as if it over-committed itself to keeping rates on hold until 2023,” wrote Scotiabank economist Derek Holt in a recent research note.

While GDP data isn’t out for December yet, the fourth quarter is on track to post a gain of 7.8%, according to estimates.

Holt added that based on preliminary Q4 data, the first quarter now has roughly 1.7% annualized GDP “baked” into it. That would be in stark contrast to the 2.5% contraction forecast by the Bank of Canada in its January Monetary Policy Report.

Additionally, some say the federal government’s talk of up to $100 billion in new stimulus spending over the next three years could contribute to over-stimulating demand.

“A key risk is that the proposed $70-100 (billion) in three-year stimulus funds will outlive their need, at least when it comes to boosting demand after 2021,” wrote CIBC economist Avery Shenfeld.

Implications for interest rates

All of this translates into the potential for the need to raise interest rates earlier than the 2023 timeframe that has been repeated in BoC messaging in recent months.

“If Canada’s economy outperformed expectations without vaccines, then just imagine how it might perform as herd immunity approaches by fall and what that may come to mean for monetary policy,” Holt added.

“With average core inflation trending around the 1.6–1.7% range and just tenths beneath the 2% target, the BoC might wind up on its inflation target or above it and sooner than it thinks.”

Shenfeld drew the same conclusion, saying that if enough demand is added post-2021, and the economy could close in on full employment, “with additional government spending being offset by an earlier need to hike interest rates to contain inflation.”

What Should Borrowers be Thinking About?

Holt’s advice to those who are heavily indebted is to plan their finances on the basis of the BoC starting to hike rates “considerably sooner” than 2023.

“If slack is eliminated into next year and inflation returns closer to target, then there should be little compelling reason for why the BoC would still be sitting on such emergency levels of stimulus if the emergency has long passed,” he wrote.

This may also give new homebuyers reason for pause if they’re considering getting a variable mortgage rate. With variable-rate mortgages priced as little as 30 basis points below certain fixed-rate mortgages, it could take just one Bank of Canada rate hike for that edge to all but disappear.

For that reason, many have already been choosing the security of today’s historically low fixed rates.

But they too could start to rise in short order at the first sign that a recovery is taking hold.

“If the BoC believes that our economic recovery has reached a more sustainable footing, it will begin to taper its (Quantitative Easing) purchases (of bonds), and when that happens, it is expected that our government bond yields, and the fixed mortgage rates that are priced on them, will rise in response,” wrote Dave Larock of Integrated Mortgage Planners Inc.

“While it may not be intuitive at first glance, changes in the BoC’s outlook are therefore likely to impact our fixed mortgage rates well before they impact our variable rates.”