According to the Bank of Canada's latest annual financial stability report, Canadian households seem to be able to bear this burden despite rising borrowing costs
The Zhitong Finance App learned that the Bank of Canada's latest annual financial stability report indicates that despite rising borrowing costs, Canadian households seem to be able to bear this burden. The report emphasizes that although mortgage repayments have increased, household wages and savings have also increased, and people are adjusting their spending habits to adapt to the high interest rate environment. Central Bank Senior Vice Governor Carolyn Rogers said the data showed that households are capable of continuing to repay their debts at higher interest rates.
Furthermore, the central bank pointed out that during the COVID-19 pandemic, many households and businesses have accumulated certain liquid assets, and mortgage holders can repay fixed loans in one go before renewing, indicating that their financial situation is relatively stable. This allows policymakers, when considering the timing of interest rate cuts, to focus on controlling inflation without rushing to cut interest rates.
Despite the general optimism, the report also mentions a number of risk points. For example, non-mortgage borrowers with credit cards and car loans are under pressure to repay, and the proportion of overdue payments has increased. The central bank is also concerned that there is a real risk that the valuation of stocks and corporate bonds may be too high and not in line with the economic outlook, which may lead to disorderly adjustments in market prices.
Risks in the commercial real estate market mainly affect small and medium-sized banks, although these risks are not concentrated within the financial system. Central Bank Governor Macram also expressed concern about the high leverage ratio used by hedge funds and pension funds in the repurchase market. In particular, their cash futures trading in the government bond market may increase market volatility.
The rapid rise in housing prices and borrowing costs has reduced the affordability of housing to its lowest level in decades, and the repayment ratio for more than one-third of new mortgages has exceeded 25%. In future policy decisions, the central bank will focus on further progress in deflation, especially after the April CPI data to be released on May 21. Economists generally expect that the central bank may adjust the benchmark interest rate to 4.75% at the June policy meeting.