Central Bank Cuts Lending Rate

Last week, Central Bank cut the benchmark lending rate to 0.5%. This latest cut underscores the wallowing economy in Canada, which has been negatively impacted by lower oil prices and weaker demand from our main trading partner, the United States. Canadians will feel the pinch most if they are planning to travel anywhere they have to buy greenbacks, with every US dollar costing $1.33 as of this writing. But if you’re staying at home you’ll notice the positive side of the cuts: cheaper money. I’ve been an advocate of variable rate mortgages for years, and this interest rate environment has proven to be the most favorable in generations. If you are fortunate to have locked in a deal that is “prime rate minus anything”, you will be enjoying a mortgage range of between 2 and 3 percent right now, and possibly lower.

With 22 years under my belt in this industry, I have seen some major market crises. The big ones are always unpredictable.

With each market development I ask the same questions: What is the broader picture and do we need to go anywhere else from where we are now. Sometimes what seems like a major market event is really just an overreaction by nervous investors, a brief period of volatility, like some dirty fuel in your car which causes your engine to run rough for a moment and then return to normal. Others require more attention.

With 22 years under my belt in this industry, I have seen some major market crises. The big ones are always unpredictable. However it’s usually not the event that creates a loss, but rather the uncertainty caused by an unresolved one. And I believe that’s where we are now. The uncertainty lies in when (not if) oil prices will recover. And reports have suggested that we may return a $100 barrel by 2020 or sooner. It also lies in the upcoming US election (which happens next November 2016) and what perception that creates of the future of US fiscal policy. Both are inextricably linked (our own Canadian election would only be impacted in the longer term by poor fiscal management). As we draw closer to a decision, the uncertainty will ease and the stock markets will return to more stable growth – until the next market event. We rely on experts who make the individual buying and selling decisions to make the right choices for our mutual fund investments. These teams of experts have many decades of experience between them, not to mention analytical tools that are beyond the reach of any investor. Let’s take advantage of that and take every opportunity to be in on the gains, instead of sitting out and losing buying power each day our money sits in cash. We won’t always win, but with care and consistency we’ll win most of the time.

Chris Horsten
chris@chrishorsten.com

Chris is a Chartered Financial Advisor designation with over 20 years experience. He is also a certified divorce financial analyst, life insurance advisor and a private pilot. Chris is married to Melaya and the father of Calvin and Emily.

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