The Bank of Canada’s historically low interest rate gives producers an opportunity for financing
As Canada continues to chart its new normal during the COVID-19 pandemic, farmers may be able to take advantage of the low interest rates.
“The Bank of Canada and other central banks in the world have lowered their interest rates to zero or even, in some countries, below zero. In Canada, it's at 0.25 per cent. So, it's practically zero and the reason the (Bank of Canada) did that is to stimulate the economy. (The Bank of Canada) put the interest rates very low so that people borrow and invest in the economy in an effort to stimulate it,” said Sébastien Pouliot. He’s a principal agricultural economist with Farm Credit Canada.
As a result, mortgages with variable interest rates are very low right now. If your interest rate is coming up for renewal, you could see a great rate, said Pouliot.
But while the cost of borrowing money is low right now, not all sectors of ag are in a good space to go this route, said Pouliot.
“If you think of hogs right now, margins are pretty tight. So, the risk of borrowing money in hogs right now is a little bit high,” Pouliot told Farms.com.
Overall, however, if you can cashflow the acquisition of farmland, equipment or a new mortgage, now may be a good time, said Pouliot.
The Bank of Canada “expects to keep its interest rate very low at that 0.25 per cent level for the next two or three years,” he said. “It will depend on how fast the economy recovers, but we're two to three years probably before the economy really starts going back up and recovers from the shock in March and April.”
Puttachat Kumkrong/iStock/Getty Images Plus photo