The Blubber

Bank of Canada will cut rates over mortgage renewals, per Desjardins.

A prominent strategist believes that due to the risks associated with upcoming mortgage renewals, the Bank of Canada has concluded its interest rate hikes and will instead make rate cuts in the middle of next year.

Royce Mendes, Head of Macro Strategy at Desjardins, predicts a shift towards rate cuts to prevent a worst-case economic scenario tied to Canada's mortgage market. Mendes anticipates this adjustment to occur as early as the second quarter of next year. He envisions the Bank of Canada's policy rate falling to approximately 2.5 percent.

Mendes underscores the significance of the wave of upcoming mortgage renewals, which he believes will necessitate lower interest rates.

Bank of Canada Governor Tiff Macklem highlighted the role of mortgage renewals as a factor in the central bank's recent decision to maintain its current interest rate during his testimony in Ottawa.

Another analyst, RBC's Darko Mihelic, recently pointed out the impending "payment shock" facing homeowners, with 60 percent of Canadian mortgages up for renewal within the next three years. Mendes suggests this percentage could be even higher.

He notes that the real challenges are expected to emerge in the middle of 2025 and continue into 2026.

Despite concerns about mortgages, the Bank of Canada is still actively addressing inflation. While the annual inflation rate dipped to 3.8 percent in September, it remains above the bank's two percent target.

Macklem has not yet disclosed when he plans to implement the rate cuts.