Will The Bank of Canada Cut Rates
Again in March?As the next overnight lending rate announcement looms on March 4th, borrowers and economists speculate about whether the Bank of Canada has another rate cut in store
When OPEC’s supply standoff initiated oil’s price slide last November, few foresaw just how quickly the commodity’s value would plunge. Equally surprising was how rapidly Canada’s economic policy makers reacted with a January rate cut that caught many - including the big banks – off guard. Now, as the next Overnight Lending Rate announcement looms on March 4th, borrowers and economists speculate whether the Bank of Canada has more “economic insurance” in store.
Will Banks Cut Prime Again?
The reality is there is simply less room for policy makers and banks to manoeuvre in today’s ultra-low borrowing environment. Rates have been historically low for the past two years. Hyper-competitive mortgage pricing has become the norm for today’s home buyer, with today’s best five-year fixed options in the 2.5 per cent range. With the traditionally hot spring buying season just around the corner, lenders are sure to race with their discounts, but it’s just a 250-basis point drop to absolute zero.
What will be interesting is how quickly Canada’s FIs react to a March rate cut. They were infamously slow to adjust their Prime rates in response to the BoC’s January mandate, taking up to a full week to implement a partial 15 per cent discount. While they are certainly cautious to protect their profit margins amid an already razor-thin spread, it can be argued they simply didn’t foresee the BoC’s last surprise move. Perhaps they’ll be more nimble this time around – especially as customers are keen to see the discount passed on to them.
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