Minuk's Musings and Another Rate Cut

This week, the bank of Canada cut interest rates again by another 0.5%.

 

So where does this leave us? After 5 cuts in a row the Canadian target policy interest rate now sits at 3.25%, down from 5% in April.

 

 

Why are rates still dropping in Canada?

 

One reason the Bank of Canada is lowering interest rates is because higher rates helped fight inflation. Now that inflation has fallen back to more normal levels, those higher rates are no longer necessary and there remains plenty of room for more cuts. Here is a chart showing CPI (inflation) and the BOC (Bank of Canada) interest rate.

 

 

Another reason interest rates are being lowered is due to Canada’s relatively weak economy. The governor of the Bank of Canada, Tiff Macklem, noted this week as part of the reasoning behind the rate cut that Canada’s unemployment rate jumped to 6.8% in November as job growth came in at a slower pace than did population growth.

 

…

 

If you hold a variable mortgage, this latest rate cut is good news.

If you are travelling to the US for the holidays however, it will be an expensive trip as continued rate cuts in Canada contributes to a weaker CAD vs USD.

 

Hope you have a nice weekend.

 

Rich

Investment Advisor