Surprise! Bank of Canada Drops Overnight Rate to 0.75%


Bank of Canada Lower Rates - What Just Happened?

In a total surprise move, unless you've been watching bond yields and/or the price of oil lately, the Bank of Canada dropped it's overnight rate to 0.75%.

5 Year Crude Oil Prices - Crude Oil Price Chart


Why Did That Happen?

  1. Oil prices are dropping like a rock. This is bad for the oil sector and large parts of the Canadian economy. Not everyone...but lots of us can be affected by this.
  2. Inflation is dropping like a rock. This is due to #1. It also puts downward pressure on wages.
  3. Layoffs and store closings are starting to happen. This also hurts the economy. More unemployment, wage cuts, less disposable income, more bankruptcies, and more can be the result.
  4. All of the above means lower rates are the medecine to help keep the cash flowing in the economy. At least...that's the thinking.

What Does it Mean For Me?

  • If you have a variable rate mortgage already, then your rate will go down by .25%
  • If your'e getting a mortgage of any kind anytime soon, congratulations...your rate will be lower than you expect. (This applies to fixed rates too. Bond yields are a more direct relative of fixed rate mortgages, but they usually anticipate what the Bank of Canada will do.)
  • Any other type of borrowing will likely have lower variable and fixed rates associated with it.
  • If you make money in Canadian dollars then our condolences, you're poorer today.
  • The negative effects of the oil price shock in the broader economy will likely be offset by growing global economic growth, a lower Canadian dollar (that's why you're poorer), and a stronger export sector.

What Should I do About It?

  • If you don't have a lot of debt, or any, then congratulations. Keeping it that way might be a good idea.
  • That said, if you have an opportunity to invest and earn a good return while borrowing to do so at a "basically free money" rate like now, then this may be an opportunity for you. Tread carefully though!
  • If you have a variable rate mortgage, keep riding the good times.
  • If you have a fixed rate mortgage above 3% or so, there might be an argument for refinancing to lock in a lower / longer fixed rate or going variable for the time being. There's some math to do here to determine whether or not paying a penalty makes sense, but it's worth a phone call. Feel free to call one of our mortgage brokers anytime to discuss.

President of First Foundation Residential Mortgages and First Foundation Insurance. Live in Edmonton but cheer for the Riders. I have lots of kids. Follow me on Twitter @gordmccallum

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