Can Canadian households handle higher interest rates?
Canada entered the pandemic with historically elevated household debt, and a C$193bn surge in mortgage borrowing during the pandemic has raised household debt to a record C$2.5tn. With many central banks turning more hawkish and interest rates set to rise, this begs the question: Can Canadian households handle higher interest rates?
What you will learn:
- Our analysis suggests households are well positioned for the gradual rise in interest rates that we anticipate in the coming years.
- We expect the Bank of Canada will begin gradually raising the policy rate from 0.25% in Q4 2022 to its “neutral” level of 2% by mid-2026.
- However, if the Bank of Canada begins aggressively raising rates in early-2022 and reaches 2% in mid-2023, interest payments as a share of disposable income would surpass the 2018-2019 peak in Q4 2022 and match its pre Global Financial Crisis (GFC) peak of 10% by Q4 2026.
Tags:
Related Services
Post
What we learned, and didn’t, from Trump’s executive orders
President Donald Trump signed a slew of executive orders related to immigration, trade, and the federal government workplace, but these actions were widely anticipated and warrant only minimal changes to the baseline.
Find Out More
Post
UK Labour market data woes show the importance of nowcasts
We think that valid concerns about the quality of data from the UK's Labour Force Survey (LFS) make it virtually unusable at present. Considering it will likely take another two years to fix the problems, this poses a major headache for policymakers and economists alike.
Find Out More