Canada Expected Prime Rate Increase In 2024: What You Need To Know

As we move into 2024, Canadians are keeping a close eye on the potential changes to the prime rate, which significantly impacts mortgages, loans, and overall financial markets.

The prime rate—currently at 7.20%—is the interest rate that banks charge their most creditworthy customers and serves as a benchmark for variable-rate loans.

With inflation still a concern and economic pressures mounting, the Bank of Canada is closely monitoring whether it will raise or adjust this rate in the coming months.

Let’s explore the expected prime rate increase in 2024, how inflation is driving this decision, and the possible outcomes for borrowers and the economy.

Canada Prime Rate Increase 2024: Current Landscape

The Bank of Canada has maintained its prime rate at 7.20%, which affects the variable rates offered by lenders for products like mortgages, lines of credit, and other loans.

This high rate reflects the bank’s efforts to curb inflation, which has been a persistent issue across various sectors of the Canadian economy.

While the central bank has refrained from providing clear guidance on future rate hikes, inflation trends are likely to dictate whether the prime rate will rise further in 2024.

As of now, inflation in Canada stands at 3.2%, and the Bank of Canada has adopted a cautious approach to avoid triggering further economic downturns.

Any increase in the prime rate will add pressure on mortgage holders and borrowers, but it’s a necessary move to bring inflation under control.

Expected Prime Rate Increase in 2024

Several financial experts predict that the Bank of Canada may raise the prime rate in early to mid-2024, likely in March or July. This prediction comes amid concerns that inflation could remain stubbornly high, driven by wage growth and increased consumer demand.

The prime rate, currently sitting at 7.20%, could see an increase of 25 to 50 basis points, which would push rates even higher.

Here’s a snapshot of the expected economic changes for 2024:

Current Prime Rate	7.20% (as of 2023)
Inflation Rate	3.2%
Possible Increase	25-50 basis points
Potential Decrease	Likely after mid-2024

By mid-2024, some experts suggest the rate may stabilize or even decrease, depending on the effectiveness of inflation-reduction measures. However, interest rates are not expected to decline significantly until later in the year.

How Inflation Impacts the Prime Rate

Inflation plays a critical role in determining whether the Bank of Canada adjusts the prime rate. High inflation leads to higher costs of goods and services, eroding purchasing power.

To control this, central banks raise interest rates to cool down spending and borrowing, which in turn should ease inflationary pressures.

If inflation remains above 3%, the Bank of Canada may have no choice but to continue raising rates in early 2024. On the other hand, if inflation decreases below the expected 3%, a rate reduction could be on the horizon by mid-2024.

Possibilities for 2024: Key Predictions

• June 2024 Rate Decision: The Bank of Canada is likely to review its prime rate policy on June 5, 2024, assessing how inflation and economic conditions evolve. This could lead to an interest rate hike if inflation persists.
• Housing Market Impact: A higher prime rate will influence the housing market by increasing borrowing costs for mortgages, which could cool down home sales and slow price growth. For homeowners with variable-rate mortgages, monthly payments will increase, putting further strain on household budgets.
• Economic Growth: Some financial analysts are predicting a slight economic slowdown in 2024 as higher interest rates may dampen consumer spending and investment. If inflation falls faster than expected, the Bank of Canada may reduce rates by 1% toward the end of the year to stimulate the economy.

Interest Rate Trends for Borrowers

For borrowers, a rise in the prime rate means higher interest on variable-rate products like mortgages and lines of credit.

The impact will be felt especially by those with adjustable-rate mortgages, where payments will increase in line with any prime rate hike. This could lead to financial stress for households already dealing with high living costs and inflation.

Borrowers should consider:

• Locking in Fixed Rates: With the possibility of rate hikes, locking in a fixed-rate mortgage could provide more stability and protection against rising borrowing costs.
• Paying Down Debt: Those with large amounts of variable-rate debt should prioritize paying it down before interest rates climb further.
• Monitoring Inflation: Keep an eye on inflation trends, as they are the key drivers for any changes in the Bank of Canada’s rate policy.

The Canada Prime Rate is expected to remain volatile in 2024, with potential increases in the first half of the year as the Bank of Canada grapples with inflation. While the current prime rate sits at 7.20%, many economists predict a 25 to 50 basis point hike by mid-year.

However, depending on how the economy performs and if inflation slows down, a rate decrease could follow in the latter half of 2024.

Borrowers should prepare for a possible rate increase and consider adjusting their financial strategies accordingly.

Whether it’s locking in a fixed mortgage rate or reducing debt, understanding the prime rate’s impact on borrowing is key to navigating the economic landscape in the year ahead.

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