An interest rate hike decision by the Bank of Canada might further aggravate the nation’s already rising insolvency rate, according to a new report by CIBC.
“This is something that the Bank of Canada has to look at very, very closely because as a society we are much more sensitive to the risk of higher interest rates,” CIBC Capital Markets deputy chief economist and report co-author Benjamin Tal told BNN Bloomberg in an interview earlier this week.
Data from Statistics Canada showed that the number of Canadians who filed for insolvency went up by 19% annually in September, representing the largest year-over-year gain since 2009.
With 11,935 consumers filing during that month, this placed the January-September total up to 102,023 insolvencies.
“The impact of interest rates is asymmetrical: lower interest rates cannot lift you, but higher interest rates can kill you even with the unemployment rate in the basement,” Tal added.
The central bank’s early December decision to refrain from cutting interest rates – despite concerns surrounding slower growth – is so far supported by decade-high inflation.
StatsCan reported that as of November, underlying inflation rose to 2.2%, from the 1.9% a month prior. Core inflation also increased by 2.2%, which was the highest level since 2009.
The BoC stated in its rate statement that over the next few months, inflation will move upward temporarily as a result of annual fluctuations in oil prices.
“Should gasoline prices remain stable, the headline inflation rate should also cool back down in the second quarter of next year, as the year-ago comparisons become a bit firmer,” CIBC economist Royce Mendes wrote in a note, as quoted by Bloomberg.