Written by 7:26 PM Interest Rates • One Comment Views: 72,810

Bank of Canada rate hikes in 2026? National Bank thinks so.

Just when Canadians thought Bank of Canada rate hikes were behind us, one major bank is now forecasting their return as early as next year.

Forecasting interest rates

In its latest forecast, National Bank of Canada (NBC) predicts the BoC will cut its policy rate by 100 basis points (one percentage point) to 2.25% this year, before then hiking rates by 50 bps in 2026.

National Bank economist Tyler Schleich told Canadian Mortgage Trends that the anticipated hikes would follow a period where the BoC lowers its policy rate slightly below neutral to stimulate the economy.

“While not in recession, Canada’s GDP growth has been below potential for some time and thus we’ll need a period of GDP growth to run above potential to return the economy to its equilibrium,” Schleich explained.

“That’s why our forecast involves a year of the policy rate at 2.25%,” he added. “Once the economy picks back up and slack is absorbed, the BoC will be able to return the policy rate to neutral, which we view as 2.75%.”

It’s important to note that while National Bank is the only Big 6 bank forecasting rate hikes next year, Scotiabank predicts the Bank of Canada will maintain a higher policy rate of 3.00% through 2025 and 2026.

While TD, CIBC, BMO and RBC also foresee continued rate reductions this year, none have yet indicated rate hikes in their long-term forecasts.

Bank of Canada rate forecasts

Lower rates to cushion the impact of mortgage renewals

NBC’s forecast takes into account the 60% of outstanding mortgages set to renew in 2025 and 2026.

These mortgages—predominantly 5-year fixed-rate mortgages—were issued during the housing market boom of late 2020 and early 2021, when rates were at historic lows.

Bank of Canada research suggests 60% of those with mortgage renewals in the next two years will face payment hikes.

National Bank says a temporarily lower BoC policy rate could help ease that transition.

“It’s also not coincidental that rate hikes would begin after the big mortgage refinancing window passes,” Schleich said. “The lower policy rate we have from late 2025 to early 2026 would help cushion that impact.”

Once the bulk of these renewals pass, NBC expects the BoC to have more room to hike rates without putting undue financial pressure on borrowers.

National Bank further argues that cutting the policy rate to 2.25% will be necessary to support not only below-potential economic growth, but also ongoing slack in the labour market.

With job growth expected to lag population growth, NBC forecasts the national unemployment rate will rise to 7%, up from its current level of 6.7%.

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Last modified: January 17, 2025

Steve Huebl is a graduate of Ryerson University's School of Journalism and has been with Canadian Mortgage Trends and reporting on the mortgage industry since 2009. His past work experience includes The Toronto Star, The Calgary Herald, the Sarnia Observer and Canadian Economic Press. Born and raised in Toronto, he now calls Montreal home.

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