On today’s show we are taking a look at the most recent announcement from the Bank of Canada. Today the Bank of Canada lowered its benchmark rate by 0.25% to 4.5%. That means the US and Canada have a full percentage point difference between the benchmark lending rates of the two central banks.
This makes for two back to back rate cuts in Canada. The Bank of Canada cut its key lending rate by 0.25 back in June.
The message from the Governor of the Bank of Canada was that lower rates were appropriate in order to stimulate economic growth. The economy is generally weak. Debt levels are nearing record levels and higher interest rates are making housing increasingly unaffordable.
Inflation fell in June after a small bump in May. In June the inflation rate was at 2.7% on an annual basis. It’s still above the central bank’s 2% target, but the falling demand in market seems to be having a disinflationary impact on a broad set of goods.
This means that real estate investors are starting to see some relief. The yield on the commercial mortgage bond has been dropping steadily over the past month. As of today, the 5 year CMB is yielding 3.54%. The best commercial financing available in Canada is priced 0.35% higher which would put the interest rate at 3.89%. That’s a very good rate and is considerably better than rates that most US investors are getting from agencies like Fannie Mae and Freddy Mac which today are pricing at 5.82%.
That’s nearly a 2% spread between commercial mortgage rates in Canada versus the US.
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