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Economic Viewpoint

Rate Hikes Are Starting to Have a Slight Impact on Canadian Households

September 27, 2018
François Dupuis, Vice-President and Chief Economist • Benoit P. Durocher, Senior Economist

Key interest rates have already gone up 100 basis points in the last year. However, the rise has only partially passed through to loans to Canadians: the average effective rate on their loans rose only 32 basis points between the second quarter of 2017 and the second quarter of 2018. Despite this fairly small increase, debt service is already near its historic high. Key interest rate increases should start to have a stronger impact on rates for consumer and home loans in the coming months, especially as further key rate increases are likely to be imposed between now and 2020. Under these conditions, debt service will soon set new historic records and, among other things, trigger slower growth in household spending. A great deal of uncertainty surrounds this, which is why key interest rates will be increased very slowly.