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Bank of Canada Governor Tiff Macklem speaks during a news conference in Ottawa, on July 12.Sean Kilpatrick/The Canadian Press

You have to be a gazelle to manage your finances these days.

So much pivoting in mid-stride as the outlook for inflation, the economy and interest rates shifts.

The latest change of view began with news that the economy contracted in the second quarter of the year. Before that, a sizable chunk of the financial world actually thought the Bank of Canada might raise rates Wednesday. With the economy stalled, the bank left rates alone. A country now wonders: when will rates start falling, and how fast?

Inflation will be your guide to the trajectory for rates. The year-over-year inflation rate in July increased to 3.3 per cent from 2.8 per cent in June, a setback that helped fuel initial speculation that rates could rise. If inflation settles in a sustained way toward the 2-per-cent level preferred by the Bank of Canada, then we should see the start of rate cuts in increments of 0.25 of a percentage point next year.

A stalled economy makes it tough to increase rates, especially if the unemployment rate rises. But it’s worth noting that there have been moments in the past 12 months where it looked like we were done with rate hikes. The June and July hikes took care of that.

More gazelle-like pivoting may be needed before we see consistent rate cuts, but for now it looks like we are looking down from the heights of Mount Interest Rate. Here are some things to do with your finances to prepare for the coming descent:

Snap up high-rate GICs:

As of midweek, you could still lock in money for terms of one through five years at 5 per cent and more, which is a very appealing return when you consider the risk level is pretty much zero thanks to deposit insurance. GICs work for savings you can afford to lock away, and as a bond supplement in investment portfolios.

Hyper risk-averse investors can use GICs exclusively, but there is a cost in the form of high taxation on non-registered accounts and foregone potential for somewhat higher returns from stocks.

Take a step back if you’re thinking of locking in a variable-rate mortgage:

Variable-rate mortgages tie your cost of borrowing to every move the Bank of Canada makes with its overnight rate. This rate has risen almost five percentage points since March, 2022, increasing payments for variable-rate mortgage holders by hundreds of dollars a month or inflating their amortization periods to 30 years and beyond.

The risk of more rate hikes is receding, though it’s possible they could tick higher if inflation persists. A fixed-rate mortgage offers zero drama, but you’d be locking into what could very well be peak rates for this economic cycle.

Consider high-yielding dividend stocks in rate sensitive sectors:

Has there ever been such a selection of blue-chip stocks with dividend yields in the 5-per-cent to 7-per-cent range? A lot of these companies have issues – is the dividend safe from cuts, will dividend growth in the future disappoint? But high interest rates have weighed on these stocks. They just seem less appealing when you can get a risk-free return of nearly 5 per cent from federal government treasury bills.

Consider bond funds:

Bonds offset the risk of stocks falling hard in an investment portfolio, but bond prices do fluctuate as well. We learned that lesson the hard way in 2022, when the benchmark FTSE Canada Universe Bond Index fell 11.7 per cent. Rising rates caused this damage, and falling rates would help roll it back.

Bond funds that track the broad bond market offer yields of about 4.5 per cent right now, which is pretty good by the standards of the past 10 years. You could do better than that if rates fall and bond prices rise. Rates fell in 2019 and bonds delivered a total return of 6.8 per cent – that’s bond interest plus capital gains on rising prices.

Three more thoughts:

  • Rates on high interest savings accounts packaged like mutual funds and exchange-traded funds track the Bank of Canada’s overnight rate, which means they should hold steady for now. Investors have devoured these products in the past year.
  • Annuity payouts are tied to interest rates, which means now is a smart time to consider an annuity if you want to convert some of your retirement savings into a guaranteed cash-for-life income.
  • Home prices have proven to be sensitive to the interest-rate trend, which suggests a stronger market ahead. An economic downturn complicates that outlook, especially if the job market worsens.

Are you a young Canadian with money on your mind? To set yourself up for success and steer clear of costly mistakes, listen to our award-winning Stress Test podcast.

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