(Toronto) Executives from Canada’s biggest banks say interest rate hikes are starting to have the desired effect of dampening demand, but they’re still hurting growth.
Posted yesterday at 1:49 p.m.
Speaking at an investment conference in Toronto as the Bank of Canada announced a three-quarters percentage point hike, Royal Bank chief executive Dave McKay stressed that while trade credit remained strong, there were signs of weakness in some sectors.
“The biggest impact of these higher rates is that they have dislocated some demand in some markets. You certainly see the mortgage markets reacting to the higher rates, and therefore you see slower growth in the mortgage markets,” McKay explained.
The bank is also seeing a slowdown in credit card purchases as people become more conservative after a period of strong growth in this sector, while demand also slows elsewhere in the bank.
“From commercial markets to residential mortgage markets to credit card markets, we’re starting to see the impact. And that’s what the Bank of Canada wants, okay. She wants a slowdown in activity. »
Mr McKay added, however, that individuals and businesses were still holding high amounts of cash and other forms of cash, and that unemployment remained at record highs, which could act as a shock absorber for any hard landing in the economy. the economy, and lead to a faster recovery.
By raising its key interest rate target to 3.25%, the Bank of Canada said it expected it would have to raise rates further in the future, given the outlook for inflation. .
Bank of Montreal chief executive Darryl White said while he expects commercial lending to slow next year, lending growth continues for now as businesses pass on price increases on consumers and that demand remains high.
He pointed out, however, that eventually the simultaneity of rising input costs, labor costs, energy costs and debt servicing costs would impact demand for commercial loans.
“There will come a day when the broader commercial borrower will say, you know, I have to find a way out. »
Meanwhile, CIBC chief executive Victor Dodig said increased liquidity has helped keep the economy going, but higher Bank of Canada rates, which are from 0.25% at the start of the year to 3.25% today, will flush this excess out of the system.
“I think the rate hikes are having the intended effect on property prices. I think they will have the desired effect on wage inflation. I think they will have the desired effect on price stability. So let’s see how this will unfold. But I believe central banks are doing all they can to calm inflation and make things better,” he said.