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Falling-Interest-Rates 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.

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