While the Bank of Canada is growing, Canadians are hoarding their credit cards

Good morning!

The day after a hawkish Bank of Canada raised its rate and announced more rates to come, studies show Canadians are going into debt again.

Great time.

New data from Equifax Canada released today shows that average monthly spending on credit cards rose 17.5% in the first quarter compared to a year ago.

“Pent-up demand and increased travel with the easing of COVID restrictions, combined with soaring inflation, have led to some of the biggest increases in credit card spending we’ve ever seen,” said Rebecca Oakes, Vice President of Advanced Analytics at Equifax. Canada.

“Unfortunately for consumers, this is also at a time when the Bank of Canada is raising interest rates.”

The Bank of Canada raised its overnight rate by 50 basis points to 1.5% yesterday and announced further hikes to come.

While the half-point hike, only the second in two decades, was widely expected, the hawkish tone of the statement caught the attention of economists.

Especially his last sentence.

“The Governing Council stands ready to act more forcefully if necessary to meet its commitment to achieve the 2% inflation target.”

Some took this as a “worrying hint” that a 75 basis point hike was on the table for the Bank’s next decision in July.

“This sentence introduces the risk of a 75 basis point hike at the next meeting in July, although such a drastic move is likely to be accompanied by another unexpected acceleration in inflation,” wrote the BMO strategist Benjamin Reitzes in a memo titled “Top Hawk.” ”

While BMO still expects the Bank’s rate to peak at 2.5%, the risks of a higher final rate have increased after this “very hawkish statement.”

Higher rates could be an unpleasant shock for some Canadians as consumer debt soars.

Equifax said total consumer debt rose 8.6% in the first quarter, reaching $2.3 trillion over the past year. Average debt per person also rose for the first time since 2019, to $20,744, a 1.5% increase from 2021.

New card volumes are up 31.2% from 2021 and lenders are extending credit on new cards to an average of more than $5,500, the highest in seven years.

In another study published today, TransUnion Reports that the Canadian credit card market is booming. Total credit balances increased by 9.2% in the first quarter compared to the previous year and by 13.8% compared to the first quarter of 2020.

“After a year of reduced activity, consumer demand for credit cards is returning and card issuers are moving into growth mode,” TransUnion said.

Interest rate hikes have already dampened the mortgage market, with new mortgage volume down 13.2% this quarter from 2021 highs, but levels are still above what was seen before the pandemic, Equifax said. Ontario and British Columbia, Canada’s most expensive markets, saw the largest declines at 15.7% and 17.6% respectively.

New HELOCs were up 6.6% from the first quarter of last year.

It should also be noted that the number of Canadians with multiple mortgages continues to rise. The 17% with more than one active mortgage is 2.5% higher than in 2021 and 9.3% higher compared to the last period of higher interest rates in 2018, Equifax said.

The low rates of delinquency observed in Canada during the pandemic are starting to increase, especially among young people. For the under-25 and 25-34 age groups, non-mortgage delinquency rates increased by 20.9% and 5.1%, respectively, from last quarter.

“While overall delinquency rates are still well below pre-pandemic levels, we project a steady increase in delinquency through the end of the year,” Oakes said.