There has been absolutely no change to the Bank of Canada's overnight lending rate, and as a result of an extremely uncertain outlook on not only the Canadian economy itself but the global economy as well, major banks are cutting their interest rates.
Yesterday, Royal Bank of Canada was the very first bank to cut it's five-year fixed rate 10 basis points from 3.89% to 3.79%. Here at the broker channel, interest rates have also been reduced by various lenders all across the board.
This is great news for mortgage borrowers who have been anxious about rapidly increasing mortgage payments on a variable rate mortgage or for those who have mortgages coming up for renewal.
Any other variable rate credit products will also maintain the same payment assuring borrowers that payments will stay manageable for the short foreseeable future.
What's causing the sudden change of heart by the Bank of Canada?
Just a couple of months ago we were hearing that 2019 was the year for rate increases. But last week, the Bank of Canada took a sharp turn and held the overnight lending rate at 1.75% signaling that the economy is not as strong as they thought it was.
So you know, the Bank of Canada's job is to maintain stable pricing and low inflation. And, much of the decision with respect to the overnight rate is based on oil and global uncertainty as well as turmoil in Canada itself (transportation issues surrounding getting oil out of the country is causing a surplus).
Perhaps the wonderful economy is not as strong as expected and the Bank of Canada needs to revise how they are looking at things going forward?
Additionally, the US Fed has also changed their tune largely because global growth is not as strong as they hoped such as tariffs being one hurdle they are approaching.
And then there's the 'yield curve' that is flattening aggressively and this tends to signal a recession is on the horizon. Some economists also suggest 2020 is just around the corner and may be a recession year.
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By: Sarah Colucci