The canada prime rate has been on a downward trend lately, but can this trend continue? Recent economic indicators point to an economy on the rise – in sharp contrast to the downward vision portrayed by many global media outlets. Is this a bubble economy – one teeters on the edge of a financial abyss? Or is Canada’s economy well positioned to take advantage of any signs of improvement in global economics? Let us examine the facts to find out.
Currently, Canada’s real estate market is performing well compared to its national average. According to estimates, Canadians have already invested more than a whopping C$1 trillion (US$8 trillion) on commercial real estate and other financial products. At this time, there is no sign that this investment fever is going to abate any time soon. On the contrary, Bank of Canada Governor Stephen Polozan indicated that Canadians are now buying more financial products as compared to the net amount of disposable income during the last recession.
One of the reasons why Canadian property values are on the upswing is the surprisingly low exchange rate of the loonie against the US dollar. For instance, at the current time, the loonie is currently 2.4 percent weaker versus the US dollar than it was two years ago. This has led to a sharp depreciation in the Canadian dollar as compared to the United States’ dollar. Consequently, Canadians have been able to take advantage of low interest rates, while foreigners have been priced out of the market as a result of the Canadian dollar’s strong exchange rate.
In addition, the recent strengthening of the s&p index has significantly benefited Canadian companies in terms of increased market value and better business operations. For example, oil giant Shell recently announced that it would increase its assets in the oil and gas sector in Canada by fifty percent to help it weather fluctuations in the price of oil. Royal Bank of Canada (RYC) and Bank of Nova Scotia (BNB) are both of Canada’s major commercial banks. In addition, there are a number of private investors that have taken advantage of the current state of the economy in Canada to acquire businesses in the country.
The recent announcement by RBC will probably benefit the overall Canadian economy as well as help the government meet their election promises of balanced trade. Two of the main concerns of Canadian voters during the last election campaign were the high cost of energy and rising costs of basic commodities such as food. If the government can successfully reduce these costs as much as possible in order to attract new investment into the country, Canadians will feel less frustrated with the lack of job growth or inflation-friendly economic indicators. Even though Statistics Canada has not released the latest estimates for today’s national unemployment rate, it appears as if Canadians are losing their patience with the Bank of Canada’s two-month term lows. If the recent trend continues, Canadians may start worrying about the Bank of Prime rate predictions for the future.
With over three trillion dollars worth of assets at risk, the Bank of Canada does not need to offer any warnings to the public regarding the effects of the unexpected four percent increase in the overnight rate of interest. If investors begin to feel more concerned about the Bank of Prime rate changes before they happen, the bank will likely face pressure from frustrated investors demanding answers. If the overnight rate is raised too much too soon, Canadian consumers could take the bank’s lack of warning and jump on the band wagon to go with the American stock market and the United Kingdom’s decision to raise their base rate.