Fixed mortgage rates keep rising, while another rate hike is expected from the Bank of Canada on Wednesday

Canadians see fixed mortgage rates going up, with certain 5-year fixed mortgages entering 6% territory.

As a rule, five-year fixed mortgage rates follow the Government of Canada 5-year bond yield, which rose by more than 0.4% last week, reached a 14-year record high level on Friday and only then went down slightly.

Now, markets are responding to the latest inflation data from Canada and the U.S. The expectations for future rate increases in Canada have intensified.

Last month, Canada’s Consumer Price Index went down to 6.9%, still exceeding the forecasts, and the core inflation kept growing. In case of the U.S., inflation continued to go up, with overall prices rising by 8.2% and core inflation, excluding more volatile items, was up by 6.6%. This is the fastest pace in 40 years.

Nevertheless, the significant pullback in bond yields from their initial highs on Friday followed speculation the U.S. Federal Reserve plans to slow the pace of rate increases after its November meeting.

Several lenders have already started raising some of their fixed-rated products last week, including most of the Big 6 banks.

But even with all the warnings about a potential recession, the central bank is expected to make another rate hike on Wednesday, coming closer to the end of one of the fastest tightening cycles in the Bank of Canada’s history.

According to RBC senior economist Nathan Janzen, it’s unclear whether it’s going to be a 0.5% or a 0.75% increase, but RBC is leaning toward the smaller rise.

Wednesday’s rate hike will be the sixth one in a row this year, as the BoC keeps fighting the record high inflation.

Last week, Finance Minister Chrystia Freeland changed her usual praising tone on the economy, warning that Canadians are going to face tough times.

“Mortgage payments will go up. Business will no longer be booming,” – Freeland noted. “Our unemployment rate will no longer be at its record low level.”

On Wednesday, the BoC will also provide its updated economic forecasts. The Bank’s view on inflation will be vital to its plans for any extra rate increases.

As you know, the central bank has raised its key lending rate from 0.25% to 3.25%, increasing the borrowing costs for Canadians and businesses.

Now, most commercial banks predict one more interest rate increase after October before the BoC takes a pause.