Bank of Canada Rate Cut Offers Relief for Indebted Canadians

A recent interest rate cut and encouraging economic data have sparked optimism among debt-laden Canadians, suggesting that better days might be on the horizon, according to a longstanding consumer survey.

The Maru Public Opinion’s Household Outlook Index (MHOI) indicates that an increasing number of Canadians believe the economy will improve within the next two months, with optimism rising seven percentage points from June to July, reaching 44 percent. Additionally, 38 percent now feel that the economy is moving in the right direction, a five-point increase from the previous month.

While the majority of Canadians remain concerned about the overall state of the economy, recent developments—such as the Bank of Canada’s second consecutive rate cut—have positively shifted the outlook for many, Maru reported in a press release.

Other factors contributing to the brighter outlook in July include easing inflation and stronger-than-expected gross domestic product (GDP) growth. Inflation slowed to 2.7 percent year-over-year in June, down from 2.9 percent in May 2023. Meanwhile, GDP for May increased by 0.2 percent from April, surpassing analysts’ expectations.

“The rate cut is not just about the immediate financial impact; it’s also a clear signal to consumers that the economy is on the right track,” said John Wright, executive vice-president at Maru Public Opinion, in the press release.

The Bank of Canada announced its second consecutive 25 basis point rate cut on July 24, just days before Maru conducted its monthly survey from July 26 to 29.

“This news was particularly welcome for those facing mortgage renewals and variable mortgage rates,” Wright noted.

However, many economists have cautioned about a looming “mortgage cliff,” as more than half of homeowners who secured mortgages before the Bank of Canada began raising rates in March 2022 are expected to face significantly higher rates upon renewal.

A November 2023 analysis by the Bank of Canada estimated that holders of variable-rate mortgages with fixed payments could see their payments increase by 54 percent during the renewal period between March 2022 and the end of 2027.

Other findings from Maru reflect the financial challenges some Canadians face. For instance, 17 percent admitted they might default on major loans or mortgages—an increase of two percent from June.

Despite growing optimism about the broader economy, personal financial concerns remain prevalent, with 23 percent of respondents reporting that they were financially worse off in July compared to June, a two-point increase. This, according to Wright, signals that the cost of living remains a more pressing issue for most people than broader economic changes.

Additionally, one-third of Canadians indicated they would rely on government programs to cover their expenses (up one percentage point), 20 percent said they might downsize to a smaller home to save money (up two percentage points), and 52 percent expressed concern about their personal finances (up one percentage point).

Despite ongoing financial pressures, Maru’s Household Outlook Index rose to 88 in July from 86 in June. The index is based on a scale of 100, with scores above 100 indicating optimism and below 100 indicating pessimism. Maru compiles its index each month by surveying a panel of Canadians about their economic outlook and financial prospects over the next 60 days.

The survey was conducted with a random sample of 1,531 Canadian adults. For comparison, a probability sample of this size has a margin of error of +/- 2.5 percent, 19 times out of 20.