Today, the Bank of Canada announced that they’ve lowered their key interest rate for the second time in 2015 – dropping from 0.75 percent to 0.5 percent. According to the BoC, “additional monetary stimulus is required at this time to help return the economy to full capacity and inflation sustainably to target.”
The bank had projected a growth of 1.8 percent for the second quarter, however it is now expected that the economy contracted at an annualized 0.5 percent. The bank has also pushed back their projection of when the economy will return to full output, citing that it will reach this target in the first half of 2017 instead of by the end of 2016.
Although the BoC did not use the word ‘recession’ in their update, the most widely accepted definition of the word states that a recession occurs when two consecutive quarters of shrinking GDP are witnessed; something that Canada has seen in the first two quarters of 2015. Immediately after the rate cut news was announced this morning, the loonie dropped by more than one cent – hitting 77.57 cents US.
The bank estimates the underlying trend in inflation to be 1.5 to 1.7 percent, and expects growth in the Canadian GDP to resume in the third quarter.
One of the first major lenders in Canada to react to this morning’s news was TD Bank, who lowered their rates by 10 basis points to 2.75 percent. Although lenders are not obligated to adjust their rates according to the BoC’s benchmark rate, their cost of borrowing is affected and they tend to pass these savings (or higher costs) on to consumers.
For up-to-date information on additional lender responses to this rate cut, be sure to follow us on Facebook or Twitter. If you have questions about your mortgage or what this means for you, please feel free to contact our office and speak to one of our Mortgage Brokers today.