The trend is but a natural outcome of interest hikes, and not necessarily a sign of trouble
Contrary to the alarm surrounding the upward trend in the Canadian insolvency rate – indeed, the fastest pace of growth in at least 3 years – CIBC deputy chief economist Benjamin Tal said that it should be taken as a natural outcome of the recent interest rate hikes.
“We are starting from an extremely low base,” Tal told BNN Bloomberg, in response to a fresh survey by MNP Ltd. which found that 46% of Canadians are just around $200 from being unable to fulfill any of their financial obligations.
In its latest meeting earlier this month, the Bank of Canada left its key interest rate flat at 1.75% after 3 increases over the last year. The central bank stressed, however, that rates “need to rise over time.”
“The Bank of Canada is telling you: maybe the disease is also the cure,” Tal posited. “Maybe the increased sensitivity to higher rates will prevent rising rates from rising to the sky.”
Read more: Fiscal unease is Canadian households’ major burden in 2019
Tal assured that despite the seemingly concerning numbers, the overall rate of consumer bankruptcy has actually been declining in recent years.
“It’s nothing to write home about,” the CIBC official said, adding that exceptions such as Alberta – which suffered the highest insolvency rates in late 2018 – and the western provinces should not be taken as an indicator of national performance.
“Alberta is definitely a different cycle because Alberta is riding the wave of oil prices and the situation there is not so great.”
The MNP Ltd. study that Tal alluded to also uncovered that 45% of Canadians believed that they will not be able to pay for their expenses this year without going deeper into debt, while 31% stated that their current incomes were not sufficient to cover their bills and debt payments.
“Our research continues to highlight the fact that many Canadians don’t have enough in the budget to make ends meet, let alone address their underlying indebtedness,” MNL Ltd. president Grant Bazian said.
