Q: If BOC lowers rates in June how will this affect Cdn Banks ? Is there an additional affect if the US does not lower in June while BOC does ? I assume also the Cdn$ will fall vs the US$; correct ? What other impacts might play out ? Thank you,
5i Research Answer:
Since rate reductions are widely expected, we would not expect much reaction. That being said, lower rates do stimulate the economy, and can help with customers and their ability to pay down credit. Thus we would still see it as a positive impact overall to financials. The bigger concern is if Canada has a recession, especially in housing. Canadian banks have lot of exposure here. US rates will likely fall slower, and this should keep the US dollar strong on a relative basis.