rates
02. rates
Rates are low, low, low, and the Bank of Canada’s forward guidance suggests they will stay where they are for years to come.
HERE’S THE LOWDOWN ON LOWDOWN RATES
In previous editions of the rennie landscape, we wrote about the likelihood that interest rates in Canada would remain low for a very long-time —bobs and weaves aside. This perspective was rooted in the notion that not only is the long-term outlook for consumer price inf lation moderate at most and low most likely, but that our demographics are such that baby boomers’ savings exceeds the demand for credit from younger generations. These notions are still valid and entirely applicable in our current economic environment—an environment that morphed seemingly overnight back in March as the pandemic set in and our economy went into shutdown mode. The Bank of Canada responded by slashing its policy interest rate that governs the short-termmarket from 1.75% to 0.25%, while Canadian government bond yields
cratered (to the point where in August, a $100 investment in a 5-year Canadian government bond would return the investor a mere $2.05 over the term of the bond). The decline in the Bank of Canada’s policy rate was intended to support borrowing and spending, while the decline in bond yields ref lected investors’ collective f light from risk as government bonds faced insatiable demand on all fronts, including from the Bank of Canada itself. With the economy expanding in fits and starts for the foreseeable future, and with governments at all levels expected to borrow and spend heavily for years, the Bank of Canada has all but committed to maintaining interest rates where they are into 2023. This in turn should provide home buyers and home builders with a little bit of certainty in a very uncertain world.
16
rennie.com
Made with FlippingBook - professional solution for displaying marketing and sales documents online