Canada Market Update: June 24, 2024
Canada Market Update: June 24, 2024
Written by Elliot Higgins, Analyst
The Bank of Canada Governor, Tiff Macklem, announced that the central bank lowered its key interest rate to 4.75%, cutting rates by 0.25%. This is the first rate cut since March 2020 and indicates a change in tone from the aggressive hiking cycle that commenced in March 2022 when the overnight lending rate was raised 10 times. The cut was well anticipated with April’s inflation rate decreasing to 2.7%, while other key inflation measures showed easing as well. The Canadian economy has softened, we saw GDP per capita decline in Q1, and the economy grew at an annualized rate of just 1.7% - well below the 2.8% expected by the central bank. Financial markets’ expectations and the message from the central bank provide confidence that we are the start of a rate cutting cycle.
The central bank’s June rate cut, and the current outlook provides optimism that that we are exiting the extend-and-pretend environment. Higher borrowing costs have slowed demand for long-term financing; however, bond yields are falling amid easing inflation figures. Our lenders remain eager to deploy capital as we approach a more neutral level for interest rates.
Despite the volatility in benchmark rates over the past couple of years, Largo has provided stability and certainty of execution as our correspondent lenders can lock rates at application. Our clients have confidently pursued financing knowing that their deal will not be re-priced due to a benchmark rate spike.
National Bank announced that it will acquire 100% of Canadian Western Bank (CWB) for C$5bn to create a stronger coast-to-coast presence to compete with Canada’s “Big 5 Banks”. CWB is a leading commercially focused bank that specializes in the small and mid-market segments. This acquisition further emphasizes the value in Largo’s relationships with lenders who will continue to service small and medium-sized borrowers in Canada.