The Bank of Canada’s rapid interest rate cuts have seemingly not helped Canadians feel much better about their financial pictures as MNP LTD reports a new low in its outlook on personal debt.
The MNP Consumer Debt Index, a broad gauge of how Canadians feel about their ability to pay down debt, reported Monday that 50 per cent of those polled now feel they’re $200 or less away from being unable to pay all their bills and debt obligations in a month.
That reading for the final quarter of 2024 is eight percentage points higher than the earlier period, according to the insolvency firm.
Canadians’ personal debt outlook — a rating MNP calculates by asking where Canadians feel their financial health lands on a scale of excellent to poor — fell 12 percentage points to just eight points in the most recent quarter. That figure normally floats in the mid-20s and has never been lower in the history of the MNP Debt Index, which launched in 2017.
MNP’s latest findings rely on Ipsos polling of more than 2,000 Canadian adults from Dec. 6 to 17. That means the poll captured some sentiment following the Bank of Canada’s most recent interest rate cut of 50-basis-points on Dec. 11, a move that brought the central bank’s policy rate down to 3.25 per cent.
The Bank of Canada’s benchmark interest rate broadly sets the cost of borrowing across the country, directly affecting variable rates of debt and influencing what many Canadians pay on their mortgages.
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The central bank policy rate stood at 5.0 per cent at the start of last year and has declined quickly since June, falling a total of 1.75 percentage points.
But Grant Bazian, president of MNP LTD, told Global News on Monday that rate cuts to date haven’t changed the financial picture for many households.
Rate cuts, like hikes, tend to have a lagged impact on Canada’s economy. It can take a year or more before top-level changes in the cost of borrowing trickle down to Canadians’ finances, economists say.
Bazian said he notices the same trend at MNP, where bankruptcy filings do not trend down immediately in response to central bank rate cuts.
“The lag definitely weighs into the survey as well, where they hear that they’ve gone down, but it hasn’t really hit their pocketbook yet,” he said.
Despite the rate cuts of 2024, a number of Canadians last year were still adjusting to the Bank of Canada’s rapid hikes since 2022. Many households were renewing mortgages last year, ratcheting up their monthly payments compared to the early pandemic when they first bought or renewed in a rock-bottom rate environment.
While the MNP Debt Index does not identify specific pain points for Canadians’ debt, Bazian said he believes mortgage renewals are likely being reflected in the latest survey.
Economic anxiety filtering into polling
The MNP polling shows a growing number of consumers are stressed about their ability to absorb an unexpected cost like a sudden car repair, while a recent TransUnion credit report suggested one in five Canadians plan to take on more debt this year to keep up with costs, mostly via credit cards.
And more than half of those polled (51 per cent) said they believed they’ll likely have to go into more debt to cover all their cost of living expenses in the next year.
Bazian said it’s typical to see declines in consumer debt sentiment in the final quarter of the year, as gift-giving and holiday dinners inflate the monthly budget and many Canadians vow to get their finances under control in the new year.
He added that stress over holiday bills coming due coincides with economic anxiety for many Canadians.
Fear of someone in the household losing their job also rose nine percentage points in the latest poll, now representing 41 per cent of respondents, an all-time high for the MNP Debt Index.
Bazian said it’s not just direct stress about debt and bill payments coming due bogging down Canadians. Worries over president-elect Donald Trump’s tariff threats against Canada, a federal election looming and other uncertainties could be clouding households’ overall outlooks, dampening overall sentiment captured in the poll, he suggested.
“People are responding to the survey in a certain point in time and during that time, there’s a lot of uncertainty in the world, whether it’s financial-related or not,” Bazian said.
Fewer Canadians now expect their personal debt situation to improve a year from now (27 per cent, down four percentage points), and more respondents said they think things will get worse.
Bazian, on the other hand, said he expects the debt outlook to broadly improve if the Bank of Canada continues to deliver additional interest rate cuts as forecast this year and as Canadians feel the relief of previous moves to lower the cost of borrowing.
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