On Wednesday, the Bank Of Canada lowered its key lending rates by 25 basis points or a quarter of one percent, for the second month in a row. This brings the BoC's key lending rate down to 4.5%. It's now clear the bank is shifting its focus of fighting inflation which was at 2.7% for the month of June, to boosting the economy.
Canadians are so indebted that households now owe more than Canada's entire GDP, according to an article published by the CBC in May, 2023. In fact, of the G7 countries, Canadians fare the worst. This same article points out that in 2007, household debt averaged 80% of GDP. As of May last year, that number stood at 107%! But (fortunately), for the past 4 quarters in a row, our household debt to GDP ratio has fallen to about 101%. This was likely one of the reasons the BoC has changed course.
I've mentioned quite often in recent posts about the 'lag effect' of steadily rising interest rates. The last 2+ years of rising rates will still be hitting us a year from now and these two rate cuts we've just had here in Canada will not be felt for another 6 months to a year and a half. Think of all the mortgage holders who've had to renew in the last year at much higher rates and locked in for the next five years, believing rates would go higher. Instead rates are coming back down in Canada.
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The BoC's aggressive rate hikes appear to have been successful in taming inflation but what about commercial real estate. It's no secret that CRE loans / delinquencies are causing problems in the USA but what about Canada. According to the website CBRE.ca, they question whether Canadian CRE investment has reached bottom. In the first quarter of 2024, CRE investment fell to $8.7 billion (CDN) which amounts to an almost 33% quarter over quarter decline. The slowdown in quarterly activity was the worst in at least 3 years. But, according to CBRE.ca, first quarter 2024 transactions were actually 5.4% higher, year over year. The first rate cut came only in June so it appears the Canadian CRE sector had already begun to 'heal' a few months beforehand. To me, it's quite clear the BoC took notice of this.
Another thing I should point out is Canada's high unemployment rate. At a 29 month high, the unemployment rate has reached 6.4% in June. To be clear on this, this rate is not high because we're lazy or there aren't enough jobs. According to StatsCan, Canada's population hit 40 million in June, 2023. 1.1 million people emigrated to Canada in the year 2022 alone. Add another mil since then!
Obviously, this is what's driving the unemployment rate up. I don't see how it can be beneficial to Canada as a whole if we keep importing people and giving them handouts while the rest of us go to work. These people should focus on making their own countries great again instead of helping send Canada down the tubes. I'm all for immigration... of highly skilled peoples, as was always the case before Justin Trudeau's government came along. Bringing in people who can barely, if at all speak English (or French as we have two official languages) and have no real skills is highly detrimental. This is not just happening in Canada. It's happening in the USA and Europe as well and has begun to cause mass chaos. Is it by design?
Expect another rate cut from the BoC at their next meeting in September. As for the Federal Reserve, they usually act in lock step. With not one but two rate cuts now by the BoC, I fully expect a FED rate cut by September at the latest but could come as early as their next F.O.M.C. meeting, scheduled for next week.
Place your bets... Are they or aren't they?
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