As with every other type of loan, the interest rate on business loans is dependent on the base interest rate set by the Bank of Canada.
Banks charge a premium above this base interest rate to businesses and individuals that it lends money to.
On Wednesday March 6, 2024, the Bank of Canada will announce its interest rate decision. It will decide if it should reduce, hold, or increase the interest rate which currently stands at 5%.
The Bank of Canada’s decision is based on the inflation rate in Canada. The inflation rate declined from 3.4% in December 2023 to 2.9% in January of 2024. For this reason, most economists, experts, and observers expect the Bank of Canada to hold its interest rate at 5%.
Very few, if any, experts expect the Bank of Canada to cut interest rates just yet. Rate cuts are expected in the second half of 2024.
The goal of the Bank of Canada is to get the inflation rate to 2%. This is expected to happen in 2025. When it achieves this goal, it may then hold or reverse course and begin to increase interest rates again.
What are the actual current odds of rate cuts by the Bank of Canada?
- 16% chance of a 0.25% cut in interest rates in Canada in March 2024
- 96% chance of a 0.25% cut in interest rates by June 2024
- 94% chance of a 0.50% cut in interest rates by September 2024
- 80% chance of a 1.50% cut in interest rates by June 2025
With this information, you can plan ahead in your business as interest rates affect business expenses for any business that carries debt.
You can expect to pay lower interest rates in the second half of 2024. As such, that time may be a good time to refinance any higher-interest debt on your business balance sheet.
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