Bracing for higher interest rates, Canadians are feeling the pinch

Six in 10 Canadians are worried about the impact of rising rates

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Good morning!

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This is Bank of Canada decision week and for many Canadians, Wednesday can only bring bad news.

There is no doubt that the Bank will raise its key interest rate, economists predict 50 or 75 basis points.

But Canadians are already feeling the effects.

A poll conducted today by insolvency firm MNP Ltd. revealed that a record number of Canadians are concerned about the impact of rising rates on their financial situation. The 59% or six in 10 Canadians who expressed concern is the highest since the survey began tracking data in 2017.

This year, the Bank raised interest rate three percentage points, with more to come, making it one of the fastest monetary policy tightening cycles in history.

On top of that, Canadians have to deal with decades of inflation.

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“For households that have already cut their budget and reduced as much spending as possible, any future rise in interest rates could put them in a position where they are forced to take on more debt to meet their bills. But the The cost of servicing this debt also increases as rates rise, making repayment much more difficult,” MNP Chairman Grant Bazian said in the press release.

Renters and low-income households are the most vulnerable. The survey found that 59% of renters, compared to 41% of owners, fear financial hardship as interest rates rise.

But owners also have reason to worry. says that if the Bank raises its rate by 50 basis points on Wednesday, a homeowner with a variable rate of 4.25% on a $593,856 mortgage will see that rate drop to 4.75%. It will cost an extra $165 per month or $1,980 per year on mortgage payments.

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If the Bank increases its rate by 75 basis points, the new rate of 5% will cost an additional $249 per month or $2,988 per year.

So will it be 50 or 75?

Desjardins economists expect the latter, but they also wonder if this is the right path.

“Monetary policy operates with significant lags, so using current data to guide decisions is dangerous and almost guarantees an overshoot,” Royce Mendes, head of macro strategy at Desjardins, wrote in a note Friday.

He points to the Reserve Bank of Australia, which surprised markets by raising rates by 25 basis points instead of 50, as a cautious path. Although there are differences between the two economies, there are also many similarities.

Both have high household debt ratios and their mortgage markets are structured so that households feel a rapid rise in interest rates, Mendes said. In fact, housing represents an even larger share of the Canadian economy, making it particularly sensitive to rising rates.

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“While we believe the Bank of Canada will raise rates by 75 basis points next week, we are not convinced it should,” Mendes said.

“If the Bank achieves a second consecutive 75 point increase, we believe central bankers should be more transparent about the likelihood of a recession in 2023. But given their recent track record in this regard, we cannot be sure they will. ,” he said.

Canadians, however, may have some clues as to where rates will go from here. The Bank releases its updated economic projections on Wednesday, and the outlook for inflation will be key.


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“Survive, but no longer prosper.” That’s how an economist described the Canadian consumer after data showed retail sales edged up 0.7% in August after falling 2.2% in July. The estimate for September is a decline of 0.5%.

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CIBC senior economist Andrew Grantham said retail sales volume is expected to end the third quarter near its level at the end of the second.

“Thus, although not necessarily growing, consumer spending on goods has not yet materially declined under the weight of strong inflationary pressures and rising interest rates,” he said. stated in a note.


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Today’s Posthaste was written by Pamela Heaven (@pamheaven), with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg.

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