We have had many questions and emails in the last couple of weeks to try to understand what will happen with interest rates with all that is happening in the US and indeed Canada right now. Well that certainly is the $64 million dollar question! On  one and, tariffs can create inflation with the extra costs we are all starting to feel and I know this is a concern to many and the Bank of Canada will certainly be watching this. On the other hand, remember that BAD NEWS in the ECONOMY is GOOD NEWS for MORTGAGE RATES, and to that effect, the BoC dropped their overnight Lending Rate again today by 0.25% which brings PRIME down to 4.95%.

We now find that VARIABLE and FIXED Rates are evening up again

Whilst we are looking at Variable Rates for many clients who feel this will continue to fall, we are finding a lot of clients are favouring locking in to Fixed Rates and we can totally understand this.

We are also seeing a LOT of clients looking to consolidate DEBT and this is something we are ALL battling so I do want to say, please do not feel you are alone. Rates are now at a level that is VERY MANAGEABLE for consolidation so reach out TODAY by email to tracey@traceyrobinson.ca or scott@traceyrobinson.ca even if just to ask a question or run a scenario past one/both of us. We are here to help. We have some EXCELLENT rates for REFINANCES and SWITCHES and many other things in between. One thing I am absolutely certain of, do NOT sign that RENEWAL LETTER before speaking with us as I can tell you for sure that we can EASE your cashflow and liabilities in most cases.

Email as detailed above, or call our Office to arrange a telephone meeting with Tracey or Scott on 236-700-0139. We are happy to chat through all scenarios and our thoughts about rates.

Bank of Canada Cuts Policy Rate By 25 BPs

The Bank of Canada (BoC) reduced the overnight rate by 25 basis points this morning, bringing the policy rate down to 2.75%, within the neutral range of 2.25%—2.75%. Tariff tremors have already led to a decline in consumer confidence and spending, a weakening labour market, and a decline in business investment. Compound that with falling population growth, and you see why the Governing Council took the overnight rate down again even though they state that monetary policy cannot offset the impacts of a trade war.

Trade wars lead to higher prices and slower growth. The rise in prices causes consumers to tighten their belts, concerned about the impact of tariffs on their income and investments. Today, there is a 25% tariff on steel and aluminum exports to the US. This impacts Canada the most as it supplies roughly 80% of US aluminum demand. The EU introduced retaliatory tariffs on US goods in response. Canada added to its retaliation. Recent data suggest the US economy is slowing.

Monetary policy remains restrictive as the real overnight rate (2.75% minus the headline inflation rate) is 85 bps, up from the historical average of 60 bps. Five-year Government of Canada bond yields increased on the news to 2.65% compared to 4.05% in the US. The Federal Reserve is not expected to cut rates when it meets again this month. 

Despite relatively strong GDP growth in Canada in the second half of last year, home sales and hiring began to slow in late January due to tariff threats, and more tariffs are yet to come. On March 20, China is expected to impose 100% retaliatory tariffs on Canadian canola oil, while pork and seafood will face a 25% levy. The Chinese tariffs are a push-back against Canada for imposing a 100% levy on electric cars from China and  25% on steel and aluminum.

On April 2, the US announced it will impose reciprocal tariffs on nations that have levied tariffs on US goods. President Trump has also said he is considering imposing retaliatory tariffs on Canadian dairy and lumber.

“We’re now facing a new crisis. The economic impact could be severe depending on the extent and duration of new US tariffs,” Macklem said in his prepared remarks.

Macklem called the uncertainty of the tariff dispute “pervasive” and said that it was “already causing harm.” Officials said the “continuously changing” US tariff threat was hitting consumers’ spending intentions and limiting businesses’ plans to hire and invest.

At the same time, Macklem said the bank “will proceed carefully with any further changes” to borrowing costs, and officials would “need to assess both the upward pressures on inflation from higher costs and the downward pressures from weaker demand.”

Bottom Line

These are uncertain times. The US is determined to impose worldwide tariffs, disproportionately hitting Canada, Mexico, and China, the US’s top trading partners. This is a misguided neo-Mercantilist policy. Mercantilism assumes that the global economic pie is fixed, so if one country prospers, another must fail. This idea of a zero-sum game was debunked in the 18th century by Adam Smith and others who showed that if countries have a competitive advantage in various products and services, all are better off by producing and trading those products with the rest of the world. It is not a zero-sum game. The economic pie grows with trade. This was the idea behind globalization and the USMCA free trade agreement.

Given Canada’s vulnerability to tariffs, the economy will suffer more than the US, which has a relatively closed economy (where exports are a small proportion of GDP). Prices will rise depending on the duration and size of the coming tariffs, but mitigating the inflation will be the weakness in economic activity. Stagflation, a buzz-word in the 1970s, is back in the lexicon. We expect the BoC to continue cutting the policy rate in 25-bps increments until it reaches 2.25% this June, triggering a rebound in home sales. Layoffs and spending cuts will dampen sentiment, but lower interest rates will bring buyers off the sidelines.