The BC Real Estate Association expects the Bank of Canada to raise its overnight rate twice in 2027.
According to its Mortgage Rate Forecast, the group expects the rate to rise to 2.75 percent to battle against higher inflation due to geo-political tensions like the war in Iran.
Economist, Amit Sidhu told Vista Radio the central bank is dealing with a lot more headwinds than usual.
“Right now, inflation is being driven by things they can’t ordinarily control. Historically, the monetary policy is used as a mechanism to directly impact inflation. But, because of the fact that inflation is being driven by global factors, they are really hamstrung in terms of their monetary policy.”
“As a result of that, we are seeing that reflected in bond markets. We have seen five-year bond yields climb to about 3.75 percent. That is a multi-year high and unfortunately a down stream impact of that is that five-year fixed rates are climbing at about five percent.”
Sidhu anticipates five-year qualifying rates to go from 6.75 percent to 6.95 percent in the short term while variable rates are projected to climb from 4.1 per cent to 4.6 by the third-quarter of 2027.
“There has been significant pressure on diesel prices and the everyday goods that we consume are oftentimes transported by vehicles that require diesel. These heightened transportation costs are really starting to build into what financial markets in terms of their short and medium term outlooks on inflation.”
Added to those challenges are a new set of tariffs on Canadian exports to the United States following a breakdown in trade negotiations. The new penalties impact roughly $28 billion dollars of Canadian goods.
The BCREA estimates the impacts of American tariffs on Canada’s GDP (Gross Domestic Product) will be around 0.2 percentage points this year and around 0.4 percentage points in 2027.
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