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Are Rate Hikes Paused?

Research Weekly Insights Rates Hike Hero
It’s time for our favourite game – “mind read the Bank of Canada.” Clearly, they have stopped raising rates… or have they? The Bank said they would evaluate the situation after the last rate hike. They’ve taken the unusual step of publishing the “governing council deliberations”; I don’t remember this happening before. One of the summary points: “Council wanted to convey that the bar for additional rate increases was now higher. If the economy and inflation were to unfold broadly in line with the projection, they agreed they would probably not need to raise rates further.” (My emphasis added)

OK that sounds encouraging for a stable market, with no more big shocks this year. On top of this, there’s clearly concern about the debt level in Canada - the Bank of Canada governor gave a Bloomberg interview this week where he said, “extra savings are probably not going to last as long as the higher debt.”

I was surprised to see that debt levels are lower in some areas than in 2018. COVID cleaned up the household “balance sheet” – higher savings rates, income supports, mortgage deferrals, business loans, working from home. A lot of debt was paid down, and HELOCs and other lines of credit are below pre-pandemic levels.

However, we can clearly see debt trending up again. Credit cards are leading the charge, but we’ve seen a year-over-year increase in home equity loans, lines of credit and car loans. Some of this is pent-up demand; we’ve discussed the car market before, and the shortages slowing down sales last year. Some of this trend is probably inflation, or just the growing population of Canada. But that debt growth may have the “silver lining” where the Bank of Canada pauses rates hikes… for now.

Research Weekly Insights Rates Hike

Summary

The Bank of Canada explicitly stated concern for high household debt levels, suggesting hesitation to further raise rates. The next Bank of Canada rate announcement is three weeks from Wednesday (March 8th).

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Pour plus d’informations, veuillez contacter:

Adam Jacobs

Head of Research | Canada

Toronto Downtown

Colliers Canada's head of research, leading a cross-country team of 20 mapping, analytics and research professionals. Formerly head of Canada research at Cushman Wakefield and Director of Analytics at Oxford Properties. Featured in mainstream publications such as the Toronto Star, industry publications and podcasts. Specializing in the big picture and the fundamentals driving real estate - demographics, the macro environment and the global economy. 

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