U.S. Fed Chops Rates. Now It's Canada's Turn

America's key lending rate fell another 3/4% today, and economists expect the Fed to keep on cutting.

Now the ball's in the Bank of Canada's court.  Most economists are looking for another 1/4% to 1/2% cut in our prime rate on April 22.

Some of their reasons:

• There's a 1.25% difference now between central bank rates in Canada and the U.S.  That's the biggest spread since 2004 and an upwards influence on our dollar.  A rising dollar is bad for Canadian manufacturers and exporters.
• Inflation is now at a 6-month low of 1.8%--below Canada's 2% target.
• U.S. auto sales are projected to fall to their lowest level since 1994.  80% of Canadian-built cars are exported to the U.S.

Canadian rate projections of note:

• TD's Dina Cover expects three 1/2% reductions at the BoC's next three meetings
• BMO's Doug Porter expects a 1/2% cut on April 22.
• 13 major economists surveyed by Bloomberg predict the BoC will lower rates a total of 3/4% by June 30.
• HSBC's Stewart Hall says, "it is not unreasonable to expect another 50 bps [cut] again" on April 22.

So what should mortgage shoppers do now?  Dan Eisner of True North Mortgage has this advice: 

"You may want to sit in the variable for six to eight months. You can float the whole time - five years - just ride it out and you'll probably average something better than anything you'll lock into right now. But that's not a risk everyone's willing to take."

Oddly enough, an RBC poll suggests only 15% of Ontario homeowners planning to buy in the next two years would choose a variable-rate mortgage.  That seems low.  By contrasts, we've seen over 75% of our clients requesting variables the past few months.