Canada's Interest Rates - Roller Coaster Ride
Importance of a short, mid and long term interest rate strategy.
January 31, 2025
Canada's interest rates has been on a roller coaster ride since March 2020. It is important to develop a strategy to avoid any shock to the business and optimize the return on your investments.
Interest rates was at a historical low in March 2020. Bank of Canada lowered the rates to sustain the economy as nobody knew how long the Covid recovery would take.
Many took the opportunity to invest in their business, purchased real estates (residential and or commercial). Real Estate prices were down, the low rates made the investments affordable and cash flow positives. It was a calculated risk but many stretched themselves over their debt capacity. Variable rates (rightly or wrongly) was attractive vs fixed rates.
The low interest rates for too long caused inflation which peaked in June 2022 at 8%+ against a central bank target of 2%. In March 2022, the honey moon for cheap money was over. Bank of Canada started raising interest rates, 10 times, 4.95% in the short period of 16 months. Many investors were caught sleeping at the wheels. It was tough dealing with this reality, some panicked and locked at higher fixed rates, sold their properties or loss sleep.
The damage was done, people were stressed with higher mortgage payments and costs of living driven by inflation. Fortunately, in June 2024 rates started coming down, 5 times by 2%. It is a reprieve to those on variable rates and or whose mortgages are coming up for renewal. Unlucky are those who panicked and fixed their mortgage rates recently.
On the deposit front, in 2020 it was a shock as the interest income on bank deposit was at it’s lowest (0.25%). The deposit rates are now increasing gradually providing the much-needed interest income to those who depend on it to meet their expenses. The rates are now going down again with a forecast of another 0.75% reduction in 2025.
At ASA Consulting we are experienced Banking, Investments and Financing professionals. We would be pleased to meet with you to discuss your Financing & Investment strategy.
The above shows that interest rates can be a YOYO affecting your business and your health. You have to plan for it to protect your business and investments.
Results may vary depending on individual financial circumstances, market conditions, and the policies of financial institutions. ASA Consulting Inc. does not provide legal or tax advice. Please consult your financial advisor, accountant, or legal counsel before making financial decisions.