Friday, January 22, 2015
Will a Rate Cut Hurt Families?
Change could end up squeezing household budgets, says financial expert
Michelle MacDonald, FWCU
ith the Canadian dollar hitting lows not seen since 2003, next week’s interest rate announcement from the Bank of Canada could add to the tumble. Though some economists are anticipating no change to the BoC’s rate, Bank of America Merrill Lynch is predicting a cut.
Bank of America Merrill Lynch announced this week, it is predicting the BoC will slash its benchmark lending rate to just 0.25 per cent at a scheduled rate announcement on Jan. 20. This would drop rates back to historic lows seen following the 2008 financial crisis and be the third time the BoC has cut rates in the last 12 months.
“A rate cut would most likely push the Canadian dollar even lower which will have an effect on household budget,” says Jim Petroski, an investment advisor with Envision Financial, a division of First West Credit Union. “A slumping dollar means consumers can expect an increase in the cost of food, since the majority of our food—especially produce—comes from the U.S.”
Petroski also states that a rate cut would also hurt retirees, as the return on guaranteed investments would once again be reduced.
However, a rate cut wouldn’t be all bad news.
“On the upside, a lower rate tends to boost economic activity because it is cheaper for people and companies to borrow money, ideally increasing consumption and investment,” says Petroski. “As well, a lower dollar makes everything that Canada sells such as resources, manufactured items, movie production etc., less expensive to the rest of the world helping stimulate growth and in turn preserving and building Canadian employment.”
Petroski recommends consumers speak with their financial advisor to understand the full impact these economic factors have on their finances and financial plans.
About Envision Financial
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