Recent interest rate cuts are no silver bullet for financial woes in Canada, experts say

Last week, the Bank of Canada cut its key interest rate to 4.5 per cent, signalling what many Canadians hope will be a brighter future for debt management. 

However, some financial experts believe this decrease in key interest is not the silver bullet many were hoping for. For Francisco Remolino, principal Insolvency Trustee at Remolino and Associates, this slash in key interest rates is a good start but is no cure-all. 

Remolino has been following the bouncing ball of Canadian interest rates for 20 years. In his time following market trends, he believes that Canadians will need a lot more than the odd drop in the bucket to help them out of a debt standard that has been growing exponentially nationwide. 

As a result of the recent adjustments made to the key interest rates, experts like Remolino believe a rather predictable pattern will start to emerge, as those with the means to do so will start borrowing more money without the shadow of high interest rates breathing down their necks. 

However, for Remolino, it’s not the financial movements of the affluent that concern him. 

“The real issue is, even with this lower interest rate, we still have massive big-picture problems, which primarily hit those who are working with lower income — or for many reasons — can’t pay much towards their debts at all. So yes, a lower interest rate helps, but the capacity to pay, that’s the challenge, and that’s what remains,” Remolino told INsauga.com. 

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Remolino cites how an unmanageable cost of living has made such a minor shift in key interest essentially moot. Nationwide, people are struggling to keep pace with the general cost of goods and services, rent, and mortgage payments. According to Remolino, cuts in interest rates have to happen in tandem with other economic factors; otherwise, it’s just a bandaid on a more severe economic wound. 

“It has to be a combination of the interest rate, it has to be a combination of work stability, it has to be a combination of a general increase in standard income. It’s a more complicated equation, especially, when it comes to personal finances,” says Remolino.

Concerning the trajectory of Canadian key interest rates in the future, the equation becomes even more intricate, as according to Remolino, there are too many variables to count as to when the next set of cuts may occur. Beyond that, there is no guarantee that it will continue to trend downward, as key interest could increase back to where they were — or higher — at a moment’s notice. 

Aspects such as the looming federal election and shifts in the market can impact national interest rates, leaving Canadians in a state of vulnerability. 

“There is a political charge to it, but at the same time, I feel that there are still many economic factors that are impacting Canadians and the overall economy. So as a result, it is very difficult to predict — with how fragile everything is — when the next key interest cut will be in the next three or four months,” says Remolino.

Remolino further indicates that many Canadian economists anticipate another cut before the end of 2024. However, given the malleable nature of the Canadian economy, there is no sure-fire way to predict when that will happen and how much it will be. 

As for how Canadians can use this current cut in key interest to their advantage, Remolino believes taking stock of one’s financial station is the best place to start. 

“These changes we have been experiencing are not small changes,” he says.

“We went through the lowest interest rates in years to a number that is now shaking everybody’s finances. So now is a good time to review exactly what works and move on from there.”