The Bank of Canada is lowering the interest rate: What does it mean for YOU?

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As you may already know, everybody has been talking about the fall in oil prices that is presently occurring. Several nations whose revenues are highly dependent on oil & gas may suffer a great deal. Some government revenues will shrink, people may be losing their jobs in some sectors, and economic growth will probably be very limited (as it has been the case in the West for quite a while now since the 2008 financial crisis).

In Canada, the central bank decided to lower the interest rate from 1% to 0.75%, in response to this phenomenon. This measure is supposed to avoid deflation, protect the real estate market and stimulate some sectors of the economy, like the manufacturing industry, that are likely to benefit from cheaper cost of capital and a favorable currency exchange rate. But what does it mean concretely for you? Will your mortgage rate decrease, will the groceries be cheaper or more expensive? How will it affect your savings and investment portfolio?

THE WINNERS

  • Individuals who have flexible-rate loans (their interest rate will fall)
  • Homebuyers presently shopping for mortgages
  • Business seeking loans (borrowing money will be cheaper)
  • Businesses that sell their goods abroad (the Canadian dollar is cheaper now)
  • Real estate sellers (home prices tend to go up with demand, when interest rates fall)

THE LOSERS

  • Individuals saving money in regular bank accounts
  • Investors with high porfolio exposures in bonds
  • Consumers of imported goods

These points are partly addressed in this short video from the National, that I advise everyone to watch.

Enjoy!

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