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HomeBlogsBank of Canada Slashes Rates! Is Your Wallet Ready for This?

Bank of Canada Slashes Rates! Is Your Wallet Ready for This?

Bank of Canada will cut interest rates this year due to a faster-than-expected US labor market loosening.

Why

U.S. Unemployment Rate Rises to 4.3%

  • Markets anticipate deeper Federal Reserve cuts in 2024.
  • Analysts anticipate two half-percentage point easing bouts.

Canada’s Bank of Canada’s Policy

  • Governor Tiff Macklem may lower borrowing costs if Bank of Canada joins global interest rate cut trend.

“U.S.-Canada Economic Intertwined”

  • U.S. economy’s weakness likely to affect Canada.
  • Macklem can normalize borrowing costs without risking the loonie.
  • Bank of Montreal’s Benjamin Reitzes suggests Bank of Canada pushes toward neutrality if U.S. economy slows.

Canadian Bonds Rally Post-U.S. Data Release

  • Bonds rallied post-data release.
  • Government five-year notes yields fell 13 basis points to 2.89%, lowest since May 2023.
  • Overnight swap traders pricing three more rate cuts, increasing central bank easing expectations.

Bank of Montreal’s Policy Rate Cut

  • Bloomberg survey predicts central bank to cut key policy rate from 4.5% to 3% by end of next year.
  • Bank of Montreal predicts rate cut at each of next four meetings, reaching 3.5% by January and 3% by mid-2025.
  • Bank of Montreal’s Doug Porter predicts the end point more than half a year earlier than expected.

Bank of Canada’s Interest Rate Cuts and Currency Concerns

  • In June, the Bank of Canada led the Group of Seven countries into easing and cutting rates.
  • Macklem’s decision to cut ahead of the Fed sparked currency worries.
  • Concerns are now lessened as the spread between U.S. and Canada rates narrows.
  • Taylor Schleich, a rates strategist with National Bank of Canada, suggests the Fed will support the Bank of Canada.

Global Bond Rally and Canada’s Inflation Risks

  • Global bond rally could increase Canada’s inflation risks.
  • Majority of fixed mortgages in Canada have terms of five years or less.
  • Rates of these mortgages could decrease if yields continue to fall.
  • This could lead to a sharp rebound in Canada’s housing market.
  • The Bank of Canada’s June survey showed a rapid change in the outlook for 5-year yields.

Canada’s Unemployment Rate Rises

  • Unemployment rate in Canada rose to 6.4% in June, 1.4 percentage points higher than in the U.S.
  • Economists predict the rate to rise to 6.5% in July.
  • The weaker U.S. data is expected to influence the BoC’s decision-making process.

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