Hey Guys!

Here’s an example of how the Bank of Canada is in a balance act when it comes to tariffs the direction of interest rates …

Let’s say the U.S. puts a big tariff on Canadian cars. This makes Canadian cars more expensive for people in the US, so they buy fewer cars from Canada. This could lead to:

• Canadian car companies making fewer cars, which means some people might lose their jobs.
• The Canadian economy slows down because it’s selling less to the US.
• The price of some things in Canada could go up because of the tariffs on imported parts.

In this situation, the Bank of Canada might lower interest rates to encourage Canadians to borrow money and spend more. This can help make up for the loss of sales to the US. 

However, if the price of too many goods in Canada goes up because of the tariffs, the Bank of Canada might also need to increase interest rates to control inflation.

Guys, the volatility and how macro-economic’s might change is wildly unpredictable.  Think back to November or December 2024 …was anyone warning us of a trade war with the U.S.??

Now think about what might change if we are in May or September later this year.  

If you see or read anything where the conviction of that person is coming across as certain—I recommend pausing and asking questions. 

Interest Rates Cut By 0.25%

Think of the influence on Canada’s economy like a coin.  

One side of the economic coin is the fiscal side.  This simply means government spending that influences the economy—think (deficit) budget spending.  

The other side of the coin is the monetary policy side.  This simply means the Bank of Canada influences the economy by moving interest rates up, down, or staying the same.

When the Bank of Canada makes an interest rate announcement (there are eight announcements per year) they are announcing changes to the monetary policy side of the economic coin.  

Last week the Bank of Canada lowered Canada’s central interest rate by 0.25% leaving the rate at 3.00%.

The commercial bank Prime rate has also dropped by 0.25% leaving that rate at 5.20%.  This prime rate is what variable rate Mortgages are linked to.  

A simple rule-of-thumb is that for every 0.25% rate cut lowers an adjustable rate Mortgage payment by about $12 per hundred thousand dollars of Mortgage balance.  For example, a $400,000 Mortgage balance payment lowered by about (4 * $12) $48/month. 

The main reason for the Bank of Canada to lower interest rates is to stimulate the economy.  The bottom line is, lower rates encourage Canadian’s to borrow, spend, and that is a boost to the economy.

Conclusion:

The questions from my clients are coming, and justifiably.  

• Where are interest rates headed?  
• Should I go with a fixed rate, or a variable rate?  
• Should I take a fixed term of 3 years or 5 years?  
• Should I start with a variable, and then plan on fixing in my Mortgage? If so, when?

Again, I really wish I had the answers, or had a high level of conviction one way or the other.  
I often think back to January of 2022.  All six big banks came out and predicted an average of 3-5 0.25% rate hikes that year.  We had *16* 0.25% rate hikes in 2022.  

The truth is, each of you is in a different financial position, stage of life, personal macro-economic outlook, your own relationship/experience with risk, and personal philosophy on decision making.  
My philosophy is to hear from you, ask you questions and provide you options that fit your needs.  
I hope this is helpful!
Talk soon,

Chad Moore