Bank of Canada Lowers Overnight Prime

Interest rates drop

The Bank of Canada’s surprise decision to lower the overnight lending rate by 25 basis points, is furthering household concerns that the economy is in for possible downturn.

The share of Canadians who predict the national economy will weaken over the next six months rose to 41.5% last week, the highest since the 2009 recession and up from 36.1% a week earlier, according to Nanos Research. It was the first full week of polling since the central bank made its surprise cut on Jan. 21.

There is a mixed opinion as the whether the rate drop actually did any good at all in bolstering the Canadian economy. On the one hand it has validated the fears of some who think this years housing market will take a downturn. Canadians have typically been much more cautious than our neighbors to the south when it comes to borrowing. Just because interest rates are lower doesn’t mean people will take advantage of them.

While lower interest rates are seen as good for the economy, the actual 25 basis point (0.25%) decrease has not been passed onto the consumer. Most lending institutions were slow to react and even when they did, their rates have only dropped 10 – 15 basis points.

Only time will tell if Canadians get lured into a false sense of security by low interest rates and cheap gas – both of which could rise dramatically at any time.