Weekly Market Summary
Week ended: Friday 14th August 2020
Bank of Canada Designates Interac e-Transfer as a Prominent Payment System
The Bank of Canada announced on Monday that BOC Governor Tiff Macklem has designated Interac e-Transfer as a prominent payment system under the Payment Clearing and Settlement Act, effective as of August 10th, 2020. The Bank made the decision in a bid to bring oversight to the payment system and ensure its safety and viability as an effective method of payment for Canadians. This designation means that it must adhere to BoC’s risk management standards which include having risk controls in place to ensure continued resilience.
The popular Interac e-Transfer payment system has become increasingly important for facilitating payments for Canadian businesses. The Interac system facilitated has facilitated $169 billion in transactions, with $486 million in the 2019 fiscal year. This development is particularly significant as SMEs have begun to rely on Interac e-Transfer as an inexpensive and convenient mode of payment. With its significance, any failure in the Interac e-Transfer system could lead to an adverse effect on economic activity and general loss of confidence in the overall Canadian payments system; making its ensured continuance of great importance.
Summary effect on SMEs: More secured payments facilitated through Interac e-Transfer, shored up by Bank of Canada.
Bank of Canada Cuts Mortgage Rates to Lowest Levels in Three Years
Tiff Macklem indicated a month ago that rates would be kept low until at least 2023 and he has indeed put his money where his mouth is by lowering rates on Thursday 13th 2020. The Bank of Canada cut its benchmark 5-year mortgage rate for the second time in three months and it now stands at 4.79%. Previously the Bank had cut rates from 5.04% to 4.94% in May. This has led to three-year rates also dropping to 3.75%, although one-year rates remain unchanged at 3.09%. This move by the Bank has caused the Big Six banks to also reduce their rates.
BoC’s decision to cut the mortgage rates is one signal of their commitment to prop up the economy and stimulate growth as the country reels from the pandemic induced recession. These rate cuts are meant to ease borrowing and make properties more affordable in Canada. There is also the possibility that the low rates will spur on demand and increase the value of real estate investments, but this would require significant property purchases which does not seem very likely in the current climate.
Summary effect on SMEs: Ability to acquire new properties (offices space, etc.) on more favourable mortgage terms. Ability to refinance existing mortgages to lower rates.