How Low And How Long Can It Go?

Jan 19th, 2009 – Comment

I think that your variable rate call on your mortgage is good for the one year period you asked about. But keep in mind that the trend is your friend till it ends!


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Lou Schizas is an equities analyst, investor, entrepreneur, professor and television and radio personality – and a true believer in the happiness-inspiring powers of capitalism.


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Bank of Canada (photo by Mike Gee)

Bank of Canada (photo by Mike Gee)

Hi Lou

Wrote to you once before and you were gracious enough to respond back so here goes again. I read earlier today that the BOC is considering dropping the interest rate again, maybe 50 bp, my question is how long can low rates last? At what point do they start sending them back up. I can’t say I am not enjoying this as my variable rate mortgage is sitting at 2.75 right now so I am hoping it lasts for at least a year…..but that might be wishful thinking.

Hi Dan,

Thanks for writing as I am always happy to help where I can.  Your information is correct the Bank of Canada is expected to cut rates by 0.50% tomorrow. That would put the rate at which banks lend to each other down to 1%.

In the United States the rate is being managed within a range between 0.00% and 0.25%. The same pattern is in play around the world as the financial crisis that began in the US - mortgage market wreaks havoc in every economy.

Central Banks such as the Bank of Canada have one lever available to them and that is short term interest rates. By all indications they have put the pedal to the metal in an effort to get their economies going.  As there is usually a lag between cutting rates and seeing the cuts hitting main street it could be a while before The Bank of Canada sees the need to move rates higher.

The current forecast for 2009 is for negative GDP growth with a tame increase in 2010.

I think that your variable rate call on your mortgage is good for the one year period you asked about. But keep in mind that the trend is your friend till it ends!

Happy capitalism!

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