RBC CEO says interest rates to come down next year, allowing for soft landing

financialpost.com:

Interest rates are likely to come down next year, Royal Bank of Canada chief executive Dave McKay said, allowing for the lender’s customers to avoid major pain when the majority of its mortgage book reprices in 2025 and 2026.

“We should be fine,” McKay said Sept. 6 at the Scotiabank Financials Summit. “We have lots of room to manage a soft landing here and we expect that to happen.”

Higher borrowing costs have cut into mortgage growth at Canada’s biggest banks, with would-be homebuyers sitting on the sidelines. At the country’s five largest lenders, including Royal Bank and Toronto-Dominion Bank, residential loan growth slowed to four per cent in the fiscal third quarter, compared with annual growth of 9.8 per cent a year earlier. Meanwhile, the amount of impaired loans in the five firms’ core Canadian banking businesses almost doubled from a year earlier.

The Bank of Canada began its recent rate-hiking campaign in March 2022, raising its trendsetting policy rate from 0.25 per cent to, most recently, five per cent, the highest in 22 years.

On Sept. 6, the central bank held rates at that level.

Borrowers in the United States, meanwhile, are “more resilient than the Canadian consumer,” McKay said, given that many enjoy the benefit of 30-year, fixed-rated mortgages that don’t adjust in the same way as home loans to the north do.

“But there’s still strong spend, which is why inflation is so persistent in the U.S., because you’ve got a very strong consumer,” he said. That’s different from Royal Bank’s home country, where you have a “more conservative consumer, growth is slowing faster, you’re seeing certainly those mortgage payments increase and therefore the economy’s cooling a little bit faster in Canada.”

Bloomberg.com