Inflation has been a key issue in Canada over the past few years, with consumer prices rising sharply since 2021. The Bank of Canada’s primary goal is to keep inflation low and stable, targeting a 2% increase annually. After peaking at 8.1% in June 2022, inflation has cooled, dropping to 1.6% in September. Much of the inflationary pressure has been driven by shelter costs, including rent and mortgage interest—affected by the Bank’s own interest rate hikes.
On October 23rd, the Bank of Canada announced its latest decision on the overnight rate, which is now a half-point lower. This announcement was part of the eight scheduled dates each year when the Bank adjusts the rate target. In tandem, the Bank’s Governing Council released the quarterly Monetary Policy Report, offering projections for inflation, economic growth, and assessments of risks for the Canadian economy. Are you wondering how changes impact financial strategies—especially when it comes to securing equipment financing? Below, we discuss the implications of the Bank lowering its policy rate, resulting in the Prime Rate dropping to 5.95%.
Interest Rate Announcement – Impact of a Half-Point Decrease
When the Bank of Canada reduces interest rates, it generally leads to lower borrowing costs for businesses and consumers. A half-point decrease means loans and lines of credit can be accessed at a lower interest rate, reducing the overall cost of financing, and freeing up cash flows for your business. This can be particularly beneficial for businesses that rely on equipment financing, as it lowers the lease or loan payments on the equipment needed to maintain or expand operations.
For businesses dependent on heavy machinery, technology, or specialized tools, lower interest rates can provide an opportunity to secure better financing terms, such as lower monthly payments or faster debt repayment and equity build. This improves cash flow allowing businesses to invest more in growth, hiring, or other operational needs. Additionally, lower interest rates can make it easier for companies to refinance existing loans, further reducing costs.
However, while the cost of borrowing decreases, it’s important for businesses to assess whether this is the right time to take on new debt, as economic conditions may still be uncertain. For companies that have been hesitant to invest due to high financing costs, a rate cut can be the catalyst to pursue their growth objectives without burdening cash flow.
Stay in the Know
Trying to time the market can be risky—even seasoned professionals often get it wrong. Lending rates for loans and leases already reflect the market’s expectations for future rate changes. That’s why it’s crucial to make asset purchases when it aligns with your business needs, rather than trying to time the market. Want to learn more and explore what makes the most sense for your business right now? Send us a message through the form below. For a deeper dive into how the Bank of Canada’s decisions influence businesses, check out this article from The Globe and Mail, the Bank of Canada website, or Global News.