Rapid interest rate cuts continue to alleviate financial pressure, leading to a surge in Canadian debt burden
The rapid interest rate cuts by the Bank of Canada seem to have failed to make Canadians feel more optimistic about their financial situation, with a report showing that the personal debt outlook index has fallen to a new low.
According to Global News, the MNP Consumer Debt Index is a comprehensive indicator that measures Canadians' ability to repay their debts. According to a report released on Monday, 50% of respondents stated that they have only $200 or less left in their monthly savings to pay bills.
The data shows that the fourth quarter of 2024 has increased by 8% compared to the previous quarter.
MNP calculates the Personal Debt Outlook Index by rating the financial health status of Canadians from excellent to poor.
The index for the latest quarter is only 8%, which is 12% lower than the normal 20%. This is the lowest record since the launch of the MNP Debt Index in 2017.
The latest survey results of this MNP were conducted on over 2000 Canadian adults between December 6th and 17th, 2024.
This means that this survey reflects the views of residents after the Bank of Canada's latest 50 basis point interest rate cut on December 11th.
Image source: Global News
The benchmark interest rate of the Bank of Canada largely determines the national borrowing costs, directly affecting floating rate debt and the loan interest rates paid by many Canadians.
However, MNP President Grant Bazian told Global News on Monday that the financial situation of many households has not improved due to interest rate cuts
Economists say that interest rate cuts, like rate hikes, usually take a year or more to transmit to Canadians' financial conditions. Bazian pointed out that this lag effect is also reflected in the bankruptcy filing trend of MNP, and bankruptcy filings will not immediately decrease after interest rate cuts.
MNP's survey shows that an increasing number of consumers are concerned about "unexpected expenses" such as car repairs, while a recent credit report from TransUnion shows that one-fifth of Canadians plan to cope with their living costs through credit cards and other means this year.
More than half of the respondents (51%) stated that they believe they may need to borrow money to pay for their living expenses in the next year.
Bazian pointed out that the end of the year is usually after the increase in consumer debt pressure, as gift giving and holiday expenses increase the budget burden. Many people will make a decision to improve their financial situation at the beginning of the new year.
In the survey, 41% of respondents were concerned that someone in their family might lose their job, an increase of 9% from the previous quarter and setting a new historical high for the MNP debt index.
Bazien also mentioned that not only is debt putting pressure on Canadians, but other uncertainties such as the tariff threat after Trump's election and the approaching federal elections may also affect economic expectations.
Source link:
https://globalnews.ca/news/10955572/canadian-mnp-debt-index-new-low-2025/