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Economic Viewpoint

Strategic View: Revisiting the “Excess Cash” Hypothesis in Canada

January 24, 2025
Royce Mendes, Managing Director and Head of Macro Strategy • Tiago Figueiredo, Macro Strategist

It’s tempting to conclude that as interest rates on term deposits decline, some of the $500 billion increase in bank deposits since 2019 will find its way into stocks. But this so‑called excess cash isn’t all that excess when viewed in the appropriate context. Our analysis shows that even if interest rates fall materially from current levels, there’s limited scope for those funds to flow into other asset classes. Our hypothesis is that much of the money currently in term deposits will be used either to pay down mortgages or to beef up demand deposit balances that have been on an unusual downward trend.

NOTE TO READERS: The letters k, M and B are used in texts, graphs and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. Data on prices and margins is provided for information purposes and may be modified at any time based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. Unless otherwise indicated, the opinions and forecasts contained herein are those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group.