Rate hold likely to spark new rise in household debt

The pause on consumer spending prompted by last year’s interest rate increases is about to give way to a new rise in spending.

That’s the warning from a director of BMO Global Asset Management who says the Bank of Canada’s dovish tone on rate increase will give consumers new confidence in using credit.

“We’re probably going to see a pick up in big ticket items again,” Fred Demers told Bloomberg. “It’s not great because we’re relying on debt, but in terms of dynamics, it looks more positive over the next 12 to 18 months in an environment where rates are going down, and not up.”

Demers acknowledged that this consumer confidence will help boost the housing market, noting the signs of improvement already showing in eastern regions. He believes that home sales in central Canada will continue to accelerate.

He said that the GDP figures due this week will give an indication of the economic trend.

“The pace of credit growth should pick up in the second half of this year,” as more “trend-like” household spending returns, Demers said. “This removes a lot of the downside risks regarding households we saw earlier this year.”

MBN

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