Holy cow, interest rates dropped by 0.50% as set by the Bank of Canada, which means it is even easier to borrow money in Canada.
The recent price-level adjustments for automobiles and the effect of past changes in indirect taxes will keep measured inflation below target through 2008. The emergence of excess supply in the economy should keep downward pressure on inflation through 2009. Both core and total inflation are projected to move up to 2 per cent in 2010, as the economy moves back into balance. There are both upside and downside risks to the Bank’s new projection for inflation; these risks appear to be balanced.
In line with this outlook, some further monetary stimulus will likely be required to achieve the inflation target over the medium term. Given the cumulative reduction in the target for the overnight rate of 150 basis points since December, the timing of any further monetary stimulus will depend on the evolution of the global economy and domestic demand, and their impact on inflation in Canada.
Is this really a good thing?
Good Things about Interest Rate Cuts
Some things that are good about this bank rate cut (assuming the banks follow suit with this rate cut):
- Your monthly payments will get lower if you have a variable rate of interest credit vehicle (e.g. Line of Credit or Secure Line of Credit). Should you lower your monthly payments? NO! Keep them at the level they currently are, and you start paying down this debt quicker. This is when you get more bang for your bucks!
- Easier for businesses to borrow money, and thus more chance for expansion and maybe more jobs? Let’s hope that is the case.
- The stock market looks more attractive an investment vehicle, as interest bearing investment vehicles now pay even less. You should start thinking about consulting with a professional or learn yourself about how to invest intelligently in the stock market (no you won’t learn that here).
Are there downsides to this?
Downsides of Lower Interest Rates
Could there be a downside to this? You bet!
- Interest bearing investment vehicles which pay next to nothing, now pay even closer to nothing. Bonds and such become even less attractive to invest in. Folks on fixed income that are relying on these type of investments, now may have less disposable income. Maybe take your Grandma out for lunch?
- People may think it’s a great time to borrow MORE money. Um, NO! If you have been holding off on a big purchase like a house, yes, you may have hit the jackpot here, however, if you are simply refinancing your credit card debt for the Nth time, think again!
- Your credit card’s monthly interest rate will not be dropping. Isn’t that surprising? The interest rates go up when interest rates go up, however, they don’t drop when interest rates drop. Your pay day loan isn’t going to drop it’s credit rate either.
- The Canadian dollar will drop in value against the American Dollar, which will translate to higher prices, especially for Gasoline (the root of all price evils).
