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Home ยป Blog ยป (5.45% – 1 Year, 5.35% – 5 Year) – What to do?

(5.45% – 1 Year, 5.35% – 5 Year) – What to do?

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On Wednesday June 7, 2023 the Bank of Canada will meet to decide the next move, and we won’t say “I told you so”, but it looks like the next move will be another 0.25% increase which will impact the Interest Rate Structure. Some banks have already increased their GIC rate offering to Lambda customers in anticipation.

We expect further increases. but now, or soon, may be the time to start to build up a small hedge, to protect against things unravelling quickly, by investing a small portion (no more than 25%) of your portfolio in 5 year GICs, based on todays Interest Rate Structure. If rates keep going up, which we expect, the majority of your portfolio is still going to earn better rates. But, if it does start to taper down, you have locked in a portion for 5 years.

Interest Rate Structure

Interest Rate Structure

Ok, we told you so… in what is likely one of the worst kept secrets, the Bank of Canada will likely increase it’s interest rate by 0.25% on Wednesday June 7, 2023, which impacted the Interest Rate Structure. Or it will telegraph that it’s “pause” is officially over and that it anticipates the next move will be a hike. Either way, GIC rates have started to move higher again. At the time of writing for deposits $25,000 or higher, the Interest Rate Structure has rates of 5.45% (1 Year) and 5.35% (5 Year) are available for Condominium Reserve Funds.

But is this a one and done?

Interest rates have continually increased faster, and higher than anyone anticipated (except for maybe Lambda Financial Consulting if you read our previous posts), so don’t bet the farm on this being a one and done. There likely is at least another rate hike coming after that – let us explain.

Inflation

Well, over the last 10 months the inflation rate has decreased from a high above 8.0% to the low 4.0%s, but has now started to slowly increase again. At the time of writing the Canadian CPI print is 4.4%. Keep in mind, inflation comes in waves, Businesses increase prices, Consumers demand higher wages, Businesses increase prices… prices went up dramatically, which is hard to replicate a year later – hence the inflation rate decreased. Now that those large prior increases are out of the calculation period, we are now seeing inflation tick higher again.

Lastly, remember the inflation target is 2.0%, and we are at 4.4% ticking higher. The Bank of Canada will not see it’s mandate complete until inflation is at 2.0% or lower for a sustained period (likely 12 to 18 months). From where we are today, especially with inflation now re-ticking higher (which really shouldn’t have been a surprise) that goal just moved further away.

Let us take a look at your Condominium Reserve Fund to tailor a specific approach for you and the current Interest Rate Structure.

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