Canadian banks have a new tailwind: Falling interest rates should spur loan growth and provide relief to stressed homeowners and businesses, who may find it easier to repay loans.
Curiously, rising rates initially offered an upside for banks: Lenders could charge more interest on loans than they paid on deposits, fattening their profit margins. Now, investors are facing a new era of monetary policy, where rates decline as inflation subsides. If rising rates failed to send Canadian bank stocks higher, will falling rates do the trick?
Second, inflation was last observed at 2.7 per cent, which could be high enough to make the Bank of Canada cautious about cutting rates too aggressively.
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