31 March 2011
It can lead to credit growth decline.
• For the past few years the Canadian credit quality has been “improving”.
• Today the Canadian credit growth is at a “9-year low.”
• It seems the Canadians are more sensitive to interest rate hikes today.
• If the rates rise, “there will be a certain default increase”. But still there’s a certain reason for every rate hike. Tal says this time it’s because the “economy is improving”. And it’s obvious that when the economy improves, the unemployment rate falls.
• “It’s exactly the unemployment rate, and not interest rates, that influences the number of defaults”.
• Higher rates will, of course, reduce consumption, because people will have to pay more for their mortgages.
Some economists believe the last point suggests the following scenario: higher rates will slow the Canadian economy and interest rates will be self-regulated. In other words, it will lead to rates lower than in case of smaller consumer debt level.