Farm Credit Canada is advising producers that now is a good time for farmers, agribusiness operators and food processors to begin reviewing their financial strategies.
This comes on the heels of the Bank of Canada dropping their overnight target rate 25 basis points to 4.75 percent.
The overnight target rate is used to set financial institutions prime rate and influence variable mortgage rates.
When the overnight rate changes, the prime rate typically changes the same amount.
In a news release, FCC’s Manager of Economics, Krishen Rangasamy, says inflation may have hit it’s peak and we will now slowly see a return to the 2 percent prime rate.
They add that a recent analysis by FCC suggests if the Bank of Canada were to drastically cut rates, borrowers could benefit from lower payments over a five-year period if they opt for a carriable rate loan.
However, a slow approach by the Bank of Canada could hinder those potential benefits.
Rangasamy said that the interest rate cut is a good opportunity for farmers, agribusiness operators and food processors to take advantage of the lower borrowing costs, but he also cautions them to be prudent, and to have a contingency plan in case of unexpected events or changes in the market.
FCC adds that borrowers should carefully consider their own personal risk level, given the pro’s and con’s of a variable rate.
For more economic insights and analysis, visit FCC Economics at fcc.ca/Economics.
