The Bank of Canada does not expect a “severe” economic downturn that generates significant job losses due to rising interest rates.
In prepared remarks delivered in Ottawa, Bank of Canada Senior Deputy Governor Carolyn Rogers said the country’s economy and financial system should be able to withstand higher interest rates and the inflation that’s causing hardship for many individuals and households.
Rogers highlighted the financial reforms undertaken since the 2008-09 financial crisis that shored up capital and liquidity buffers in Canada, as well as stringent mortgage stress tests that are ensuring the economy remains resilient as rates climb higher.
“There are good reasons to believe that the system as a whole will be able to weather this period of stress,” said Rogers.
In a research paper released just prior to the speech, the Bank of Canada estimates that about 50% of variable-rate mortgages have reached the point where additional payments may be needed. That’s about 13% of all mortgages in Canada.
During her speech, Rogers reiterated that the central bank is starting to see its aggressive interest rate hikes work to slow economic growth and bring prices lower.
However, Rogers added that “we have a long way to go to get inflation back to target.”
Economists are forecasting that the Bank of Canada will raise interest rates by another 50 basis points at its next meeting on December 7.
The central bank’s trendsetting overnight interest rate is currently at 3.75%, up 3.5 percentage points since March of this year.
