If you have read the news lately, you can’t avoid the constant headlines about the recent interest rate cut and the value of the loonie falling in lockstep. A number of my clients have asked me why they should care and what it means to them. Here were some of my answers:
1. A cut to mortgage rates – A cut to the key overnight lending rate means that most banks and financial institutions followed up with a reduction to their posted mortgage lending rates. This is adding fuel to an already hot real estate market which many professionals have suggested may be overheated. While most consumers love the low costs to borrow money today, economists continue to sound alarm bells about Canadian household indebtedness.
2. Increase in the cost of groceries, clothing and other staples – As our loonie falls in value, the things we import cost more. The most obvious place you notice it is when you are at the grocery store buying produce and other goods from outside of Canada.
3. Travel to US/Vacationing – If you are travelling outside of Canada and especially in the United States, you will definitely feel the fall of our loonie in your buying power here. Your Canadian dollars will buy you less when converted into American dollars as the loonie continues to fall in relation to the value of the greenback.
In the end, the story about a falling loonie is generally one about a perceived disadvantage to consumers. Meanwhile, the benefits are being passed along to domestic suppliers. As the loonie continues to fall, some wonder how much longer this will last!?