If you’ve been thinking the Bank of Canada (BoC) was going to keep chopping interest rates, you might want to hold that thought. According to Scotiabank, the era of rate cuts may have wrapped up, and the next big announcement could be a hike by mid-2026.
What’s going on
Scotiabank’s economists are saying that we’re done cutting. According to the bank, inflation is still too sticky, consumer demand hasn’t totally cooled, and the recent cuts were more like insurance than a full-blown stimulus push. You can read the new release by Scotia here. “Inflation risks are serious enough that the Bank of Canada is done cutting interest rates,” the report says. “We expect Governor Macklem and his colleagues will raise the policy rate by half a percentage point in the second half of 2026, reversing the most recent cuts.”.
To summarize, they are expecting Two quarter-point increases in the second half of 2026.
Why it matters for you (and your mortgage)
- Even if you’re on a variable rate, the “cheap money” era might be fading, so it’s wise to keep an eye on your renewal or switch timing. There could be a possibility that the rates have already bottomed out. Case in point, fixed rates have dropped from the low 6% range in 2023, to the high 3% range as of today.
- For homeowners who locked in a good rate recently: nice job. But if your term’s ending soon or you’re thinking of switching, this forecast could affect your strategy. While variable rates are once again gaining popularity, they come with an inherent risk of unforeseen changes, which might not be what someone wants, especially after they just finished swallowing the post-2022 variable rate hikes of over 3% to the prime rate up until last year.
- For buyers and those renewing: The window of super aggressive low rates might be narrowing, so prepping now can pay off. Fixed rates are at the lowest they have been in the last 3 years, so locking in something now may be worth it if you do not enjoy the volatility of the variable.
- Keep in mind that variable rates could still be a great option. Out of the major banks, 2 of them are still projecting another rate cut in 2026, which could bring the best variable rate down to 3.14%(currently at 3.39% for insured mortgages).
What banks are saying vs. Scotiabank
Here’s where it gets interesting. Not everyone is on board with Scotiabank’s projections. While Scotiabank expects some hikes, banks like TD Bank Group, Royal Bank of Canada (RBC) and Canadian Imperial Bank of Commerce (CIBC) think the policy rate will sit tight at 2.25% through 2026, meanwhile the Bank of Montreal (BMO) and National Bank of Canada see maybe one more small cut left in 2026. Interestingly, inflation dropped to 2.2% today, however the rate cut odds have barely budged.
My take (and what you can do)
1. If you’re seeking a renewal or switching now: Locking in a good fixed rate now might save you from bumps later.
2. If you’re on a variable rate and comfortable with some risk: Keep watching the BoC’s signals. You can convert your variable rate into a fixed at any time, so you have that option available should you want it in the future. For now, you may be ahead of the current fixed rates in terms of savings, so you wont be giving any of it back any time soon(hopefully) until rates start to increase.
3. If you’re buying or planning to buy: Don’t wait forever for rock-bottom rates; the best deals might be slipping away.
