TORONTO -- and will keep it there for a very long time, until inflation hits its target of 2%. There was also a little optimism in the tone coming from the Bank of Canada's newly minted governor Tiff Macklem, suggesting that possibly the worst of the virus is behind us. This however, doesn't mean extraordinary monetary financial support won't still be required -- because it will be . And while the economy is expected to contract 6.8% in 2020 and expand 4.9% in 2021, it will still take two full years to fully recover.
What does the decision by the Bank of Canada mean to you?
1. If you are a potential homebuyer, rates will be lower for longer and likely hover around existing levels. That would apply to fixed rate mortgages and variable rate mortgages. This in turn will lend support to a housing market that has started to tick higher.
2. If you are carrying a lot of debt or have incurred debt due to the pandemic, the lower rates will help you service that debt and pay it down a little sooner. Individuals and small business owners in many cases have watched their debt level balloon trying to make ends meet. A word of caution. Lower rates for longer is not the signal to take on more debt. Sure the Bank of Canada would like to see consumers stimulate the economy but your household can only do so much. If you are carrying a lot of debt this is your golden opportunity to repay that debt faster in the low interest rate environment.
3. If you are a saver it is likely time for you to explore other options and move up the risk curve a little, for example, corporate bonds of good quality companies over Government of Canada bonds. Retirees who count on interest and dividend income have been struggling and that isn't likely going to change anytime soon. It may be time for retirees to re-evaluate their retirement planning assumptions.
4. If you are currently unemployed and and collecting the CERB, which will likely come to an end come the fall, the potential is there to take advantage of the wage subsidy program, which has been extended to December as the economy starts to pick up and employers begin to hire again.
Depending who you are you and what your financial position is you will likely respond a little differently to lower rates for a longer period of time.
My key takeaway is still one of caution but a little enthusiasm we are moving in the right direction.
