Bank of Canada governor Tiff Macklem says he has no plans to cut interest rates any time soon, even as higher rates intensify risks associated with household debt and vulnerabilities in the Canadian financial system.

“Nobody should expect that interest rates are going to go back down to the very low levels that we’ve seen over the last decade or so,” Macklem told a news conference discussing the central bank’s latest financial system review Thursday.

“We’re in a transition period to a world where interest rates are going to be higher than what many people have gotten used to and that transition is going to take a while. And through that transition that creates some risks.”

In its annual financial system review, which highlighted the central bank’s concerns around the ability of Canadian households to manage their debt amid that transition, the central bank said it is more concerned than it was a year ago about the risks posed by that debt.

While about one-third of mortgages have seen an increase in payments compared with February 2022, just prior to the Bank of Canada’s recent rate hiking campaign, nearly all borrowers are expected to face higher payments by 2026.

Mortgage payments could spike as much as 40% by 2026 for those on variable-rate mortgages with fixed payments, while those with fixed-rate mortgages could see their payments increase by 20% to 25% over 2022 levels.

The bank said many Canadians have less financial flexibility after stretching their budgets to get into the housing market by taking on large mortgages with lengthy amortization periods.

Source: Advisor’s Edge