The Bank of Canada doubled its overnight lending rate this week to 1% and is expected to move it above 2.5% by year-end. The interest cost on floating rate loans moves with the BOC rate, so each .50% increase adds about $500 per year for each 100k of floating rate debt. In short, rate hikes add up and reduce cash available for everything else, especially in Canada, where households have added debt at a record clip over the past two years. Credit-rating agency Moody’s is warning about pent-down demand effects; see Moody’s: Mortgage rate rises likely to stifle housing market demand:
“Clearly consumers were attracted by these low-interest rates and really ramped up their borrowing. However, that pulls forward a lot of demand. As these interest rates rise, consumer appetite for debt will diminish — quite significantly… Originations are going to be much slower through this tightening cycle than anything we’ve seen in recent history. Households are carrying a lot of debt already. There’s not a lot of appetite to take much more on.”
Bankruptcy trustee Doug Hoyes explained Canadian impacts well in this segment.
Doug Hoyes, co-founder of Hoyes, Michalos & Associates, joins BNN Bloomberg to share reaction to Bank of Canada hiking rates and what this means for Canadian consumers. He says Canadians will need to earn significantly more to keep up with rising everyday costs. Here is a direct video link.
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