As the Bank of Canada’s recent interest rate hikes work their way through the economy, policy makers may have cause for concern.
In its decision Wednesday to hold the benchmark rate steady at 1.25 per cent, the central bank reiterated its cautious stance and said policy makers will “continue to monitor the economy’s sensitivity to higher interest rates.”
The following charts show the three rate increases since July are already starting to have an impact on Canadian consumers. “The Bank of Canada’s tightening is starting to bite,” George Pearkes, a macro strategist at Bespoke Investment Group, said in an interview.
Wednesday’s statement pointed directly to decelerating growth in household credit, which has slowed for the past three months running. Household credit, which includes everything from residential mortgages to auto loans to lines of credit, rose just 0.2 per cent in January from a month earlier, the slowest pace in more than half a decade, according to Bank of Canada data released over the weekend.
Home sales in Toronto and Vancouver are slowing to start 2018, a sign that higher borrowing costs and new rules restricting access to mortgage financing may be starting to have an effect. The central bank said Wednesday it will take time to fully assess the impact of the changes, which also include provincial regulations on foreign buyers.
Mortgage interest payments rose 3.7 per cent in the fourth quarter, the fastest pace since 2007, according to Statistics Canada data. That compares with 1.3 per cent growth in disposable income over the same period. “We don’t think this is the end of the world but clearly it ate into fourth-quarter consumption, and is likely a headwind for now that may cause the BoC to pause,” said Pearkes.