Slowing Economy May Limit Rate Hikes and Mortgage Rate Increases

Canada's economic growth is expected to slow down due to the ongoing US trade war and lower immigration rates, according to Bradley Saunders, North America economist at Capital Economics. The GDP growth rate is predicted to be around 1.5% in the coming year.

The Bank of Canada may only hike its overnight interest rate twice in 2027, reaching a rate of 2.75%, as it balances inflation and economic growth concerns. However, bond swap markets expect four rate hikes between now and mid-2027, which would bring the headline rate to 3.25%.

TD Economics has downgraded its near-term forecast for home sales and valuations due to rising mortgage rates. TD economist Rishi Sondhi expects home sales to decline by 5% this year and remain subdued in 2027.