Well it happened, the Bank of Canada took an emergency rate cut decision, we now have interest rates that are 50 basis points lower (0.50%) than where they were. The expectations for a rate cut were powerful. There was almost no expectation of a status-quo. Given that the Fed cut rates, the BOC (Bank of Canada) was forced to emulate.
The overall Canadian economy has been slowing, well before the outbreak of the coronavirus. GDP growth, job growth, and overall dynamism were well on the decline. In particular, the trade war with China was just one of the myriad problems which was weighing on the economy. The end result of this rate cut will be to see the real estate market gain added momentum. Media headlines of this have been firm. One story put it very bluntly by suggesting the rate cut decision would put ‘kerosene’ to the real estate sector. One way or another, the Bank’s are likely to all pass on the savings to consumers and mortgage holders given the competitive nature of the market.
Federal Reserve Chair Jerome Powell took an aggressive turn in adding stimulus to the U.S. economy and mitigating the impacts of the coronavirus by cutting interest rates by 0.50%. The move was not unexpected, and was in many ways called for, but the scale of the cut is big and the forcefulness of the decision had a reactionary feel to it. The Fed’s build up to the cut was not as comprehensive and gradual as they have been in past years. Chair Powell’s press conference announcing the cut was poorly received by stakeholders, and some believed that he failed to inspire confidence in the broader economy. Strangely, market reaction to the cut was the opposite of traditional patterns. The selloff that was initiative by unease over the supply chain, tourism, and broader economic anxieties of the spreading virus intensified after the rate cut was announced. It’s likely that market participants felt that the cut was excessive and that the rationale behind it suggested a significant degree of unease over the economy.
In late February the Conference Board of Canada released a report in which they provided a snapshot for the next two years for every provincial economy. For Ontario, the report predicted challenges with trade, lower government spending as a percentage of the economy, and modest changes in wages, benefits, and income. However, the same report suggested that a broad based recovery in residential, commercial, and industrial construction would intensify this year and in 2021. A return of greater levels of foreign investment, lower interest rates, and continued employment growth were all cited as factors which would take the building sector to new highs.