A new survey shows that Canadians appear to be adjusting to a higher interest rate environment.
About 53% of Canadians say that rising borrowing costs due to interest rate hikes by the Bank of Canada aren’t having a negative impact on their personal spending, according to a new survey by Nanos Research. Around 43% of respondents say they are feeling at least somewhat of a pinch, with the remaining 4% saying they are unsure.
While the numbers show a slight deterioration from a survey taken just three months ago, the largely stable levels of consumer discomfort -- despite a fresh rate hike last month in July -- may give Bank of Canada Governor Stephen Poloz confidence to carry on with gradually returning borrowing costs to more normal levels.
Governor Poloz has raised interest rates four times since last summer (2017), and investors are betting on at least one more increase this year, most likely in October. Nanos conducted the polling on behalf of Bloomberg between July 30 and August 5 (the last rate hike was July 11).
The central bank has been closely monitoring the impact of higher interest rates on households, worried that current high levels of debt mean the hit on personal spending will be amplified. That risk is one of the reasons the Bank of Canada has taken a gradual approach to raising interest rates from historically low levels, even with the economy near capacity.
Households have taken advantage of exceptionally low borrowing costs since 2008 to accumulate a record $2.1 trillion in debt, mostly in mortgages. That’s left Canada with a ratio of household debt to gross domestic product of about 100%, the highest among Group of Seven leading industrialized nations, according to data from the Bank for International Settlements.
And the heavy debt burden is already beginning to curb demand in the economy, the Nanos polling shows, particularly in heavily indebted demographics. The impact is highest in Quebec, with a majority in that province saying they are spending less, and individuals aged 35 to 54, a group which holds the highest share of outstanding mortgages.
At the same time, there isn’t much evidence of a sharp deterioration. The share of people saying they haven’t been negatively impacted by the higher interest rates was 56% in May, three percentage points higher than the latest survey. The change is within the 3.1-percentage-point margin of error for the poll.
