Today’s post is about something of interest to a lot of people. Earlier this week the Bank of Canada surprised just about everyone with an interest rate cut from 1.00% to 0.75%. The Canadian dollar dropped to the lowest it’s been in years. Over 20 economists were surveyed prior to the Bank’s bomb shell reveal and not a single one of them expected the news, lol. Maybe economists are just there to make weather forecasters look good.
Even our country’s most prolific real estate blogger, Garth Turner, was taken by surprise. Just last week a commentator on his site named BlackDog pointed to a report which predicted this week’s interest rate cut, and Mr. Turner promptly replied to dismiss the report. Not even a best-selling Canadian author of 14 books on economic trends saw this announcement coming. It just goes to show how difficult it is to read the minds of central bankers.
The Rate Cut is good for:
- Debtors who have variable rate mortgages, lines of credits, car loans, student loans, or other types of floating rate debts. Every $100,000 of debt one has will translate to about $20 a month of LESS interest one has to pay.
- Investors in the stock market. Lower cost of borrowing is a type of monetary stimulus that has the same effect of printing money. The U.S. stock market has gained 100% over the last 6 years since it began it’s Q.E. programs.
- Existing bond holders. Lower coupons on new bonds mean existing bonds are worth more.
- Industries like manufacturing, exports, hospitality, tourism, companies with primarily $USD revenue, or any other businesses that benefits from a lower Canadian Loonie.
- People who have debt in general. Lowering interest rates is inflationary which diminishes the value of one’s debt.
- Home owners. Rate cuts drive real estate prices higher.
The Rate Cut is bad for:
- Savers. High interest savings accounts are looking less attractive with the threat of inflation.
- Consumers. Canadians import a lot of food and staple items from the U.S., which will cost more for us with a lower $CAD.
- Cross border shoppers. Trips to the U.S. will become more expensive.
- People living on a fixed income, like pensioners.
- Retailers who’s suppliers are from outside of Canada
Thank you Stephen Poloz for this rate cut. I appreciate your continuing support to prop up the already inflated housing market in Vancouver and increasing my home’s value. You’ve successfully penalized all the savers and risk adverse members of the investing community by lowering the returns on their GICs and term deposits. You have instead rewarded the speculators and heavily leveraged investors, such as myself, by leaving more money in our pockets, and encouraging even more borrowing activity! Hurray for cheaper financing and more incentive to use debt because that’s exactly what Canadians need more of right now. I applaud your push for higher inflation with this rate cut. The 2% CPI in 2014 just wasn’t high enough. I’m sure making it even more expensive to live in this country is exactly what consumers want, especially when more people are out of work now than a month ago.