Money123: The Bank of Canada coos like a dove

How low can the Bank of Canada go?

The Bank of Canada delivered the second interest rate cut of the easing cycle this week, with economists noting a tonal shift from the central bank in favour of more cuts aimed at stimulating the economy.

The widely-anticipated 25-basis-point cut brings the Bank of Canada’s policy rate down to 4.5 per cent.

Governor Tiff Macklem said that monetary policymakers are “increasingly confident” that inflation’s going to keep coming down, though he reiterated that all future decisions are predicated on the economic data lining up with forecasts.

But the central bank is now bringing up concerns about overshooting the two-per cent target and hopes that future rate cuts will lift Canada’s flagging economic growth.

Tu Nguyen, economist with RSM Canada, tells Global News that the change in tone from hawkish — leaning towards keeping rates higher — to dovish and more cuts to come was the starkest part of the central bank’s statements on Wednesday.

And as BMO chief economist Doug Porter said it, the new tone “almost seems to suggest that the Bank now needs to be convinced not to keep trimming rates.”

Read more on where economists expect interest rates to go for the rest of the year, and check out what the latest rate cut might mean for your mortgage and the wider housing market.

Used car prices are falling. Here’s why

The latest AutoTrader data shows Canada’s new and used car markets are continuing to normalize after the supply chain disruptions of the past few years.

Improved supply for used vehicles drove average prices for the segment down eight per cent-year-over in June, AutoTrader said in its latest price index report this week. Prices are relatively steady in the new vehicle market even as inventory levels surge 70 per cent compared to last year.

AutoTrader said car prices in both the new and used markets have receded from their peaks in 2023 now that semiconductor shortages and other supply chain snarls that delayed vehicle production are in the rear view mirror.

While motorists were relying on the used car market to purchase vehicles in a timely manner, that demand is now shifting back towards new cars, AutoTrader noted.

Drivers are now trading in their old vehicles as they purchase new, helping to build up the stock of used cars in Canada.

But even if prices aren’t heading down in the new vehicle segment, AutoTrader says signs of more rate cuts to come from the Bank of Canada is helping to improve affordability in the market.

Here’s what to know if you’re shopping for a fresh set of wheels in the months to come.

The Loblaw (boycott) results are in

A few months after the consumer campaign to boycott Loblaw stores in May over frustrations tied to rising food prices, Canada’s largest grocer reported earnings revealing the impact of the movement.

Loblaw missed analysts’ expectations for revenue in the quarter and reported a lower profit than a year earlier, though the company largely attributed that to a $500-million settlement in class actions over the alleged industry-wide bread price-fixing scheme.

As for the boycott, CEO Per Bank said the movement had only a “minor” financial impact on the company’s sales in the quarter.

Mike von Massow, food economist at the University of Guelph, tells Global News that he suspects Loblaw might’ve been pushing its loyalty programs during the month of the boycott to increase foot traffic and mitigate any impact from the boycott.

Going forward, he doesn’t expect the one-month movement to have much of a lasting impact on consumer behaviours.

“We as Canadians are very much creatures of habit and go shop in places that we’re familiar and that we’re comfortable,” he said.

Read more on how Loblaw is responding to consumer stress at the grocery store.

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– THE QUESTION –

“My spouse and I are seniors, both in our mid 70s and, as we are now trying to pay off our mortgage and line of credit as quickly as possible, would appreciate your advice. We have an outstanding mortgage of $48,000 and our Line of Credit is $47,000 both due for remortgaging September 30th at a higher interest rate. We feel it’s important to rid ourselves of this debt in the next three years but are unsure if using any of our RRIFs is the right course of action. Your advice would be most helpful.”

— A Money123 reader 

“Some seniors enter retirement with debt or incur it during retirement. Although it would be nice to pay it down, there are some considerations.

If you are considering taking extra withdrawals from your registered retirement income funds (RRIFs) beyond your minimum withdrawals, just be mindful of the tax and benefits implications. The withdrawals may result in 20% to 50% income tax depending on your other sources of income and province of residence. Some benefits, particularly Guaranteed Income Supplement (GIS) and Old Age Security (OAS) are means-tested, so higher income from larger RRIF withdrawals may also reduce government benefit payments. The point being that $10,000 of additional RRIF withdrawals may result in as much as about $8,000 to pay down debt or less than $5,000.

The good news is that interest rates are expected to decline due to moderating inflation so both fixed and variable rates could be lower by the time of your mortgage renewal. Mortgage rates are almost always lower than line of credit rates, so rolling your line of credit balance into a mortgage may be advisable.

A home downsize is an option, but this has transaction costs. You could always sell and rent but if you choose this route, you should try to find an apartment or retirement residence where you can be reasonably assured you will not have to move again.”

– Jason Heath, managing director, Objective Financial Partners

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