Pandemic savings will only partly mitigate the impact of reduced purchasing power, according to economist
Borrowing costs across North America are not likely to fall any time soon, according to Sal Guatieri, senior economist and director at BMO Capital Markets.
While the Bank of Canada appears “somewhat more confident” than the US Federal Reserve when it comes to approaching the supposed ends of their tightening cycles, “it is also planning further rate increases even after lifting rates by 350 bps this year,” Guatieri said.
Canadians’ household savings, which swelled over the past two or so years, will only “partly cushion” the impact of the constricted financial conditions.
Some of these savings “will no doubt be used to lighten their heavier debt burden and to counter the ravages of inflation,” Guatieri said.
Read more: Labour market strength builds the case for further rate hikes, experts say
BMO is anticipating an additional 75 basis points of increases by early 2023, which would push the BOC policy rate to 4.5%.
This level will be 50 bps higher than BMO’s previous round of predictions, an adjustment that was brought about by stubbornly high inflation.
“Policy rates are moving deeper into restrictive territory, putting the economy on course for at least a moderate downturn,” Guatieri said.
“In addition, more indebted Canadian households are particularly sensitive to rising credit costs, while most US homeowners have 30-year fixed-rate mortgages that shield them from tighter monetary policy.”
