{"id":49,"date":"2016-03-30T21:06:23","date_gmt":"2016-03-31T01:06:23","guid":{"rendered":"http:\/\/www.dinani.ca\/blog\/?p=49"},"modified":"2016-03-30T21:06:23","modified_gmt":"2016-03-31T01:06:23","slug":"will-the-bank-of-canada-cut-rates-again-this-july","status":"publish","type":"post","link":"http:\/\/www.dinani.ca\/blog\/2016\/03\/30\/will-the-bank-of-canada-cut-rates-again-this-july\/","title":{"rendered":"Will the Bank of Canada Cut Rates Again This July?"},"content":{"rendered":"

With economic recovery slower than expected, it’s looking increasingly likely that we’ll see another overnight rate cut next week, says Penelope Graham<\/span><\/h4>\n

\u00a0\"Percentage<\/h4>\n

This article originally appeared on rate comparison website\u00a0<\/em>RateSupermarket.ca. To read the original article, click\u00a0here\u00a0<\/a>\u2013 and for rate comparisons and finance news, go to\u00a0www.ratesupermarket.ca<\/a>.<\/em><\/p>\n

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Will the Bank of Canada cut interest rates this month? It\u2019s increasingly likely, as Governor Stephen Poloz faces disappointing economic data and mounting evidence of a Canadian recession.<\/span><\/p>\n

Markets have already priced the chance of a cut at 50 per cent, as pundits and lenders revise their forecasts following grim quarterly numbers. Was the \u201cone and done\u201d stance taken after\u00a0January\u2019s surprise rate cut<\/a>\u00a0wishful thinking?<\/span><\/p>\n

January\u2019s Cut \u2013 Not Enough?<\/span><\/h3>\n

When the\u00a0BoC slashed the overnight Lending Rate<\/a>\u00a0by 0.25 per cent early in the year, it was expected it would be enough to counter the dropping price of oil, and economists continued to support the possibility of a rate hike in late 2015.<\/span><\/p>\n

For consumers, the cut was effective \u2013 Canadians continue to spend and borrow at a historically low cost, and money has remained liquid among the banks.<\/span><\/p>\n

At the time, Poloz stated the rate cut was a necessary form of insurance against the downturn \u2013 but oil\u2019s fallout was supposed to be over by now. Q2 was hailed as the recovery period from\u00a02015\u2019s \u201catrocious\u201d first quarter<\/a>, when the economy shrank by 0.6 per cent. However, the impact has not been \u201cfront-loaded\u201d as expected \u2013 energy sector investment has been slashed along with mass layoffs, the reverberations of which are keenly felt in Alberta\u2019s housing market and throughout Canada\u2019s other economic drivers.<\/span><\/p>\n

The Makings of a Recession<\/span><\/h3>\n

Economists are looking to Q2 data for clues on the BoC\u2019s next move. Most telling will be whether the economy has contracted for a second quarter in a row, which is the technical symptom of a recession. The Bank of America has called for a downturn, with the loonie dwindling to 77 cents USD by early 2016. So far, Canadian lenders TD, CIBC and Desjardins\u00a0have backed the doom and gloom diagnosis<\/a>.<\/span><\/p>\n

The BoC\u2019s own prediction called for stagnant economic performance \u2013 for that to happen, the numbers must report a 0.2 per cent and 0.3 per cent growth in May and June respectively.<\/span><\/p>\n

Early-year forecasts called on non-energy sectors to pick up the slack, but that hasn\u2019t been the case. Recent export numbers are the latest nail in the coffin, with a $13.6 billion trade deficit on the books so far for 2015, and a 0.6 per cent drop in May. As Avery Shenfeld, chief economist at CIBC World Markets, stated, \u201cThe trade data were the first major indicator for May activity, and it ain\u2019t lookin\u2019 good. That\u2019s one more chip on the side of our forecast for a rate cut by the Bank of Canada next week.\u201d<\/span><\/p>\n

Perhaps the only recession naysayer is the federal government; Finance Minister Joe Oliver believes it\u2019s \u201ctoo soon to tell\u201d, and remains optimistic that Q2 numbers will deliver good news \u2013 and support the Conservative\u2019s 2015 election promise of a budget surplus.<\/span><\/p>\n

How Will This Affect Your Mortgage Rate?<\/span><\/h3>\n

Despite the dire implications for Canada\u2019s economy, this is potentially positive for borrowers as interest rates will be kept low for the longer term. A Bank of Canada rate cut is meant to lower the Prime rate offered by lenders, meaning variable mortgage-rate holders will see an immediate dip in their monthly payments \u2013 though given the\u00a0bank\u2019s holdout after the January cut<\/a>, it\u2019s not guaranteed how much room they\u2019ll relent.<\/span><\/p>\n

There\u2019s also downward pressure on fixed mortgage rates, as Canadian bond yields remain in top demand. Investors, wary of the unfolding\u00a0situations in Greece and China<\/a>\u00a0and encouraged by low inflation, are snapping up our \u201csafe haven\u201d bonds, and have pushed yields below the one per cent threshold, meaning lenders can continue to discount their fixed-rate products.<\/span><\/p>\n

But What About Household Debt?<\/span><\/h3>\n

The BoC has rapidly changed its tune on this one; in\u00a0June\u2019s semi-annual Financial System Review<\/a>, household debt levels were named as the top economic risk, as effects from oil would be \u201cconcentrated in the oil-producing regions\u201d.<\/span><\/p>\n

But, in one of Poloz\u2019s most recent (and famously colourful) speeches, he indicated debt levels were now a backburner issue, stating, \u201cIf the doctor says you need surgery to avoid death, the side effects don\u2019t usually deter you.\u201d<\/span><\/p>\n

What Does This Mean For You?<\/span><\/h3>\n

With cheap debt likely available for the long-term, it\u2019s tempting to max out your affordability on home and auto financing. The golden rules of borrowing still apply \u2013 don\u2019t assume interest rates will stay this low forever, and build the chance of a rate rise into your budget to avoid sticker shock at renewal time.<\/span><\/p>\n

Stay tuned for updates \u2013 the next Bank of Canada announcement will be July 15, 2015.<\/strong><\/span><\/p>\n

– See more at: http:\/\/www.rew.ca\/news\/will-the-bank-of-canada-cut-rates-again-this-july-1.1996666#sthash.haXeC3KV.dpuf<\/p>\n

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With economic recovery slower than expected, it’s looking increasingly likely that we’ll see another overnight rate cut next week, says Penelope Graham \u00a0 This article originally appeared on rate comparison … [read more<\/a>]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[14],"tags":[],"_links":{"self":[{"href":"http:\/\/www.dinani.ca\/blog\/wp-json\/wp\/v2\/posts\/49"}],"collection":[{"href":"http:\/\/www.dinani.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.dinani.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.dinani.ca\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"http:\/\/www.dinani.ca\/blog\/wp-json\/wp\/v2\/comments?post=49"}],"version-history":[{"count":1,"href":"http:\/\/www.dinani.ca\/blog\/wp-json\/wp\/v2\/posts\/49\/revisions"}],"predecessor-version":[{"id":50,"href":"http:\/\/www.dinani.ca\/blog\/wp-json\/wp\/v2\/posts\/49\/revisions\/50"}],"wp:attachment":[{"href":"http:\/\/www.dinani.ca\/blog\/wp-json\/wp\/v2\/media?parent=49"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.dinani.ca\/blog\/wp-json\/wp\/v2\/categories?post=49"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.dinani.ca\/blog\/wp-json\/wp\/v2\/tags?post=49"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}