Bank of Canada delivers rate relief to consumers, paving way for stronger spending

The Bank of Canada, which lowered its trend-setting policy rate to 4.75 per cent from 5 per cent on Wednesday, is widely expected to announce further cuts over this year and next.The Bank of Canada’s shift to cutting interest rates will alleviate some of the financial pressure facing Canadians and lead to a pickup in consumer spending, although some households may be wary of quickly opening their wallets.to 4.

A single rate cut “doesn’t mean that households are immediately going to go out and start spending,” said Carrie Freestone, a Royal Bank of Canada economist. Retail sales have stagnated in real terms over the past three years, and once Canada’s soaring population growth is accounted for, they’re in decline. Per capita spending on goods has fallen for 10 consecutive quarters. The impact has been large for retailers tied to the real estate slump, such as sellers of furniture and home appliances.

Even so, there are various signs of distress. Personal insolvencies are on the rise, although they are similar to levels in 2019 in per capita terms. Among households without a mortgage , overdue payments on credit cards and auto loans have climbed to prepandemic levels and continue to grow. Royce Mendes, head of macro strategy at Desjardins Securities, said variable-rate borrowers represent the “biggest risk” among those renewing their mortgages in the coming years.

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