Good morning,

No rate change at this morning’s Bank of Canada interest rate announcement & no significant change to the outlook.  

What most people want to know is where rates are heading & the forecast is still late 2022.  The key word to hang on there is forecast.  Forecasts are often wrong.. in Jan of this year the Bank expected the economy to contract in Q1 & it grew at an annualized rate of 5.5%.  For Q2 the expectation was 2.5% growth & we saw a contraction of 1.1% annualized.  For those interested the swaps traders are pricing in 1 rate hike in the next 12 months & 2 more over the following year which has come down from July. 

The not-so-silent-killer, which is getting talked about more & more, is inflation as the 3.7% reading is the highest of the last decade.  There are record long wait times for raw materials.  Canada’s Farm Product Price Index rose 24.4% YOY in June which tied for the highest reading since the high inflation of the 70s.  Prices of just about everything are going up.   

So how does inflation relate to your mortgage?  I can say with confidence that all of your mortgage rates are lower than inflation, which is actually a good thing from a borrowing perspective.  That means you’re paying back the money you borrowed with dollars that are becoming less & less valuable.  You essentially have a negative rate mortgage.  Some of your debt is inflating away without having to do anything.  That gives you an opportunity you can play 2 ways:

•  Conservative approach: try put as much extra cash on your mortgage as possible, take advantage of low rates & try gain as much ground as you can while borrowing costs are so low.  For those that don’t like debt, this is your time to shine. 
  
• Higher risk approach: use your extra cash to invest, let your debt erode away & focus your resources on growing your financial assets. 
  

With the conservative approach, you’ll become debt free quicker, better insulate yourself from market corrections (although following covid it’s hard to see policy makers letting markets crash), but may not benefit from growth in risk assets. 

With the higher risk approach, if we continue to see inflation at these levels or higher, your net worth can grow a lot quicker but you do run the risk of your investments performing poorly & being left with a slower path out of debt. 

These are the conversations you should be having about your finances & if you could use some help or direction, please get in touch as I have an excellent financial planner I can put you in touch with.

This went longer than usual but I’m just getting more & more questions on this topic so hope you found it helpful & please share to anyone you think will benefit from watching this : )

The Bank of Canada kept rates unchanged today in their scheduled rate announcement. The economic rebound in Canada has been better than expected but as we now face a second wave, much of the current outlook is dependent on how covid plays out here at home. Housing has been strong. Personally I’ve seen a lot of clients migrating from the downtown core to places like Victoria, the interior & further out in the lower mainland. Working from home is something many are taking advantage of by upgrading for space.

Of course these record low mortgages rates are a big reason for housing’s strength so how does the interest rate forecast look currently? Officially, the Bank of Canada has said they don’t expect to be raising rates until after 2022. They want to hit a 2% inflation target before moving to any increases & they expect inflation to start to pick up slowly early next year.

The Bank is also continuing its bond purchase program, which suppresses yields (and interest rates). I wanted to include this chart as it really illustrates the eye popping balance sheet growth of Canada’s central bank compared to others around the world since the pandemic started.

Currently our central bank owns 1/3 of our federal debt… so we’re generating debt then buying our own debt. Yes this is something many central banks are doing globally, but as soon as inflation expectations pick up, that means more bond buying is required (so more increases to the balance sheet) in order to keep interest rates from rising. It can turn into a vicious cycle where the end result does not fare well for our currency & the cost of goods.

I don’t think we’ll see much of a change in outlook until the end of this year but we have one more rate announcement coming up in December so will update you then.

That’s it for me today. Thanks for watching & have a lovely Wednesday.

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Good morning, the Bank of Canada kept rates unchanged this morning with their scheduled rate announcement.  From the Bank’s release, the severe impact of Covid appears to have peaked & the gargantuan policy response has helped replace lost income & cushion the effect of the shutdowns. Right now the Bank’s forecast is for a sharp, partial rebound followed by a slower grind back to pre-crisis levels.  The grind part of that being the key element. 

Let’s remember that policy response was more life support than it was stimulus.  Debt, which was already at high levels pre-covid, is giving up future consumption for greater consumption today.  Unless that debt is used to create a new income stream that will help pay for that new debt, then it creates a drag on future cash flows.  If I take out a mortgage to buy a vacation property, then those payments are going to take away from what I can spend my money on & invest with otherwise.  If I use that financing to buy a rental property, I can acquire that asset without my monthly consumption being as impacted.   The economic gravity of what has happened in Canada & around the world the past few months is something that will weigh on us for a long time. 

What can you do?  If you’re able, use this as an opportunity.  Take advantage of low rates by creating another income stream, or by reducing your current debt load.  If neither of those are options & you are one of the millions turned upside down from has been the worst financial event in anyone’s memory, think about what you can do moving forward to help keep you brace for the unexpected.

I was thinking last night how, through most of my life, it has felt like we have been on a linear path of progress & of course, life is not linear.  Life is cycles of booms & busts, bright times followed by dark times.  Winston Churchill said never let a good crisis go to waste.  Find a way to emerge from this stronger than you were before.  If that means taking government help, education, a career change, using technology to improve productivity, re evaluating your monthly budgeting, investing, spending more time with loved ones, find a way to use this situation as a learning experience.  It is clear we have entered a darker time as humans.  Crisis’s happen & are happening more often than ever in our lifetime.  Find a way to better brace for the unexpected. 

I’m Ryan, glad to be clean shaven again & to have a reason to iron my dress shirts.  I hope you have a great day.

Here is a link to the Bank of Canada release.