Analysts highlight the implications on household debt of the Bank of Canada move
A growing number of debt-burdened Canadians are hopeful about the future following a recent interest rate cut by the Bank of Canada, according to a new survey by Maru Public Opinion. The poll has revealed that more Canadians believe the economy is set to improve in the coming months, providing a glimmer of hope amid ongoing financial stress.
The survey, part of Maru’s Household Outlook Index (MHOI), found that 44% of respondents expect the economy to improve over the next two months, a seven-percentage-point increase from June. Additionally, 38% believe the economy is heading in the right direction, marking a five-percentage-point rise from the previous month.
This shift in sentiment comes after the Bank of Canada announced its second consecutive 25-basis-point rate cut on July 24, just days before Maru conducted the survey from July 26 to 29. The rate cut, coupled with positive economic data such as slowing inflation and stronger-than-expected GDP growth, has helped ease concerns for some Canadians.
John Wright, executive vice president at Maru Public Opinion, highlighted the significance of the rate cut in shaping public perception. “Aside from the dollars and cents impact, it’s a tangible signal to consumers that things are on the right track for better days ahead,” Wright said in a press release.
Mixed reactions on rate cuts
The Bank of Canada’s decision is particularly significant for those grappling with mortgage renewals and variable mortgage rates. Economists have warned of a looming “mortgage cliff,” as more than half of homeowners who secured mortgages before the rate hikes in March 2022 are expected to renew at substantially higher rates. An analysis by the Bank of Canada estimated that variable rate mortgage holders with fixed payments could face a 54% increase during the renewal period from before March 2022 to the end of 2027.
Despite the improving economic outlook, many Canadians remain anxious about their personal finances. The survey found that 23% of respondents felt financially worse off in July than in June, a two-percentage-point increase. Additionally, 17% of Canadians admitted they might default on major loan or mortgage payments, up two percentage points from the previous month. Wright noted that while broader economic indicators are improving, “the cost of living, not big picture changes, matter more to most.”
Financial worries persist for many, with 52% of respondents expressing concern about their personal finances, a one percentage point increase from June. A third of respondents said they would rely on government programs to make ends meet, and 20% indicated they might downsize to a smaller home to save money.
Despite these challenges, the MHOI rose to 88 in July from 86 in June, signalling a slight increase in overall consumer optimism. The index, based on a scale where 100 indicates optimism, still falls below the threshold, reflecting the cautious outlook of many Canadians.
Maru’s survey included a random selection of 1,531 Canadian adults, with a margin of error of +/- 2.5%, 19 times out of 20.
Do you have something to say about this story? Leave a comment below.
