On the Return of Low(er) Interest Rates

It’s back to the future time in Canada. The steadily higher interest rate trajectory that was to be the new normal now appears to be officially dead and buried. With the U.S. Fed signalling an end to higher interest rates and trumpeting its newfound zeal and preparedness to accommodate markets, the BOC had no choice but to emulate.

The BOC’s head body, the Governing Council, made the point that an “accommodative policy interest rate continues to be warranted.” The BOC made its point about the need to keep rates stimulative at the same time as it cut its GDP growth forecast for the national economy to 1.2% from 1.7%. Canadian bond yields and the dollar both fell in response to the news. The clarity of the BOC’s words are striking and diametrically opposite from its firm and disciplined messaging when it repeatedly made the point that it needed to raise rates not long ago. It also suggests that there is an anxiety with monetary policy heads and a perception that the economy increasingly requires propping up. 

 

In Tembo’s opinion, the BOC’s announcement is extremely important for all Canadians and particularly for mortgage holders and prospective home buyers. This announcement from the BOC is strong positioning for stimulus, lower rates, and potential buying of stocks or securities to boost prices, reinforce demand, and service the financial sector. 

 

The implication of this announcement outlines the incoming reality of lower rates, cheaper mortgages, and the BOC reinflating the housing bubble back to more dynamic levels. Canadians should prepare for tighter finances to be safe but should also expect money to become cheaper in the months to come.