Canadians have handled mortgage debt 'exceptionally well,' says RBC's McKay
Canadians have been resilient during the high interest rate regime of the past couple of years and have handled their mortgage debt “exceptionally well,” Royal Bank of Canada’s chief executive Dave McKay said on the same day the Bank of Canada announced a third consecutive 25-basis point rate cut.
While the current economic situation is still difficult and “foggy,” it is “getting easier” with rates coming down, the head of Canada’s largest bank said.
“Every 25 basis points is roughly $7 billion of cash flow in a Canadian economy,” McKay said during the 25th Annual Scotiabank Financials Summit in Toronto. “So, it releases that debt service into consumption into savings and that is very meaningful to the economy.”
Most of Canada’s Big Six lenders posted better-than-expected results when they released their quarterly results last week. The banks’ ability to earn amidst a challenging economy bolstered the outlook for a soft landing in the economy, according to some analysts.
From a rate-cycle perspective, the “worst is behind us,” McKay said.
Although rising unemployment levels are a matter of concern, he said that there will be more construction activity and more properties sold when interest rates come down another 100 points. The rate is now 4.25 per cent after the cut on Tuesday.
“They need rates to come down into that three-to-3.5 per cent range to make it cost-effective to buy a unit,” he said. “We are well on our way to doing that. You are going to see better growth in the mortgage portfolio.”
McKay said there was a lot more activity in the corporate end as well, with companies getting ready to take on more debt and make more investments, as well as a lot more talk about mergers and acquisitions.
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