The Lower Bound for Interest Rates in Canada
How low can we go? While many believe interest rates in Canada just can't get any lower, remember that in 2009 and 2010 the Bank of Canada (BoC) Overnight Rate (that being the rate that ultimately drives Canadian banks' Prime Rates) was down as low as 0.25%. That BoC Overnight Rate is currently at 0.75%.
From the article in Canadian Mortgage Trends "Much has transpired since then, however. Louise Egan, a spokesperson for the Bank of Canada, says that since 2009 'we’ve seen in some other countries that it’s possible for nominal interest rates to be negative due to the costs of holding currency, and so the thinking has advanced among central banks on the subject.' "
Given what we are seeing around the world, particularly in the EU and China, it seems to me there is plenty of uncertainty in the world's financial markets and I for one don't see this ship turning around quickly. That leads me to expect the volatility in interest rates here in Canada to continue. It's anyone's guess when rates will rise to what we have considered normal, or if indeed we are now in a new normal.
Read more on this article from Canadian Mortgage Trends here