Interest Rate Projection by Desjardins - From 5% to 2.5%
While many economists are debating when the first interest rate cut will occur, whether it will be in April, June, or late 2024, Desjardins Group believes that 'by the end of next year, it predicts interest rates will be roughly half of what they are now' (Ovid, 2024). This projection underscores the potential for significant shifts in the lending landscape, influencing mortgage rates and affordability for prospective buyers. With over 3.4 million mortgages expected to be renewed by 2025, such a change in rates can alleviate pressure on homeowners and loan holders. Additionally, as interest rates play a crucial role in determining the cost of borrowing, such forecasts can impact individuals' decisions regarding home purchases and mortgage financing, potentially attracting more people to the market.
While TD Economics revealed that shelter-based inflation now accounts for more than 50% of overall inflation, Canada is also experiencing pressure with regard to home supply. This is quite a complicated situation when considering the delicate balance between demand and supply dynamics in the housing market. On one hand, the increasing cost of shelter is a significant concern for households, impacting affordability and financial stability. On the other hand, the limited availability of homes exacerbates this issue, leading to fierce competition among buyers and further driving up prices should the rates start going down.
While TD Economics revealed that shelter-based inflation now accounts for more than 50% of overall inflation, Canada is also experiencing pressure with regard to home supply. This is quite a complicated situation when considering the delicate balance between demand and supply dynamics in the housing market. On one hand, the increasing cost of shelter is a significant concern for households, impacting affordability and financial stability. On the other hand, the limited availability of homes exacerbates this issue, leading to fierce competition among buyers and further driving up prices should the rates start going down.
Canadian Banks Bolster Resilience
Loan loss provisions soar as the Big Six reveal Q1 earnings for 2024. Loan loss provisions, also known as credit loss provisions, are funds set aside by banks to cover potential losses on loans and other financial assets that may default. Banks use these provisions as a precautionary measure to mitigate the impact of loan defaults and maintain financial stability. By allocating funds for potential losses, banks ensure they have sufficient resources to absorb unexpected credit losses without significantly impacting their capital adequacy and ability to lend. As per recent reports, Canadian banks take precautionary steps to protect themself against potential economic instability:
These increases in provisions for credit losses across major Canadian banks reflect a proactive approach to managing potential risks in their loan portfolios. These adjustments underscore the bank's commitment to maintaining robust financial positions and ensuring resilience in the face of evolving economic conditions.
- RBC's provisions for credit losses increased to $813 million, an increase from $532 million in Q1 2023.(Yahoo Finance)
- TD's provisions for credit losses increased to $1 billion, an increase from $690 million last year.
- (Yahoo Finance)
- BMO's provisions for credit losses increased to $627 million, an increase from $217 million in Q1 2023. (Yahoo Finance)
- Scotiabank's provisions for credit losses increased to $962 million, an increase from $638 million in the same period last year. (Yahoo Finance)
- CIBC's provisions for credit losses increased to $585 million, an increase from $295 million in the previous year. (Yahoo Finance)
- National Bank's provisions for credit losses increased to $120 million, an increase from $86 million a year ago. (Yahoo Finance)
These increases in provisions for credit losses across major Canadian banks reflect a proactive approach to managing potential risks in their loan portfolios. These adjustments underscore the bank's commitment to maintaining robust financial positions and ensuring resilience in the face of evolving economic conditions.
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Sources:
Financial Post: https://financialpost.com/news/economy/bank-of-canada-to-cut-interest-rates-in-half-end-2025-desjardins
Canada Mortgage News & Expert Analysis: https://www.mpamag.com/ca/news/general
Financial Post: https://financialpost.com/news/economy/bank-of-canada-to-cut-interest-rates-in-half-end-2025-desjardins
Canada Mortgage News & Expert Analysis: https://www.mpamag.com/ca/news/general
