How do Bank of Canada Rate Cuts Affect Equipment Lease Rates?
The Bank of Canada is responsible for raising or lowering interest rates as part of the federal monetary fiscal policy. This interest rate is what the Bank of Canada charges to lend money to commercial banks.
As spending increased during the pandemic so too did inflation. In an effort to cool inflation after the pandemic, the Bank of Canada rapidly raised the interest rate from 0.25% in March 2022 to 5% by July 2023. These higher rates translated to an increase in the prime rates set by banks which then resulted in consumers reducing their spending.
As inflation began to trend in the right direction, the Bank of Canada announced that they would be cutting the interest rate. On June 5th, July 24th and September 4th, the interest rate was lowered by -0.25% resulting in a 4.25% rate today. To further strengthen the economy, it is anticipated by some banks that the interest rate will be reduced further by the end of the year.
When the Bank of Canada lowers the interest rate, banks and other financial institutions lower their prime rates on loans and mortgages stimulating economic activity. Lower prime rates mean that people and businesses pay lower interest on loans which encourages them to spend more, boosting the economy and inflation.
In addition to market changes, your interest rate is directly affected by your credit score meaning that the higher your credit score, the lower your interest rate, generally. At LFS, we strive to give our customers the lowest rate possible because we understand the impact that even a small rate increase can have on your business.
If you have any questions or would like to discuss interest rates and your business, give us a call at 416-522-6556! We’re here to help!