A third of Canadians say the Bank of Canada’s plan to raise interest rates will hurt their finances
by Mitchell Thompson
Nearly three-quarters of survey respondents say their living costs have increased over the past three years — particularly those in Ontario, Canada and B.C.
Roughly one third of Canadians think the Bank of Canada’s most recent interest rate hike will hurt their finances, just as nearly three-quarters say their living costs have increased over the past three years, according to a new poll.
The survey, by Forum Research, found that 34 per cent of 1,150 respondents said that the central bank’s most recent 0.25 per cent rate increase “will have a negative impact on their finances,” with 12 per cent saying the effect will be “extremely negative.”
“A considerable number of Canadians are concerned about what the rate hike will do to their finances and they’re overwhelmingly in the middle categories,” Forum Research analyst Gary Milakovic said.
Some 44 per cent of respondents aged 35-44 polled said the hike will have a somewhat or extremely negative effect on their personal finances. This anxiety was shared most significantly by those earning $60-80,000, with 39 per cent agreeing, and by those earning $80-100,000, with 41 per cent agreeing, that the effects of the hike would be negative.
“Given record levels of total household debt, it isn’t a surprise that some Canadians would feel that a rate hike could be onerous on their finances,” David Hogan, chief economist at Richter LLP said.
“We’ve already seen some of the chartered banks increase their prime rate in anticipation of this rate change by the Bank of Canada. … For those who are financing large purchases such as houses, this makes the cost of that ownership more expensive,” Hogan said.
Currently, the increase in the cost of credit is slight, Patrick Ercolano, portfolio manager at MD Financial management said. Those with a $500,000 mortgage with a 25-year amortization, for example, would see roughly $75 added to their monthly payment. Those with fixed-rate loans would see the rate go up when the loans are renewed.
The good news, Erolano said, is that higher interest rates usually signal a stronger economy.
How damaging that will be to a family’s finances “depends how tight its budget is,” MNP insolvency trustee Joe Wilke said.
More than seven in 10 respondents to the Forum poll said that over the past three years, it’s become more expensive to live, with residents of Ontario (77 per cent), Canada (78 per cent) and B.C. (79 per cent) more likely to report higher living costs. Residents of Quebec and the Prairie provinces were more likely to say that the cost of living had decreased.
The Forum poll is accurate to plus or minus three per cent, 19 times out of 20.
With the Bank of Canada expected to continue to gradually raise rates — many are expecting another increase in October — things could get tighter in a hurry.
“The first and second hike may be fine but the third time, you might feel the squeeze,” Laurentian University economics professor Louis-Philippe Rochor said, adding that the bank has indicated its target interest rate is around 4 per cent, which could mean another six or seven hikes in the next few years. “People will have to pay more and that either means cutting back to bare minimums—fewer movies and coffee—or falling behind on payments.
“Interest rates are a bad way to manage an economy. It’s like using a sledge hammer to kill a fly on your table. Yeah, you’ll kill the fly but you might also kill most of your table,” Rochor said.
Financial Post
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