BMO Financial Group

BMO Financial Group

September 05, 2012 12:06 ET

BMO Economics Changes Forecast-Interest Rates Not Expected to Rise Until Late 2013

- Bank of Canada Holds Overnight Rate Steady

- Next move in interest rates expected to be higher, not lower

- Average household debt is $112,329 - BMO advises Canadians to continue reducing debt

TORONTO, ONTARIO--(Marketwire - Sept. 5, 2012) - BMO Economics now expects the Bank of Canada to maintain its overnight lending rate at 1 per cent until autumn of 2013 - a revision from their previous prediction of a rise in July 2013. The prediction was made following today's Bank of Canada announcement which placed the overnight lending rate at 1 per cent for the 16th straight time.

"We now expect the Bank of Canada to remain on hold deep into 2013, even as they continue to signal that the next move in rates is still likely to be higher rather than lower," said Doug Porter, Deputy Chief Economist, BMO Capital Markets. Mr. Porter suggested that Canadians are in relatively good shape regarding debt levels, but that rates will go up, and not down, by next year.

A BMO report, conducted by Leger Marketing, shows average household debt in Canada, including mortgage, credit card, line of credit and loan debt, is $112,329. The report also shows:

  • The majority of Canadians with debt expect to be debt-free within the next five years.
  • One-quarter (26 per cent) of those who carry debt say that their debt load exceeds $100,000
  • One quarter (25 per cent) of Canadians are debt-free
  • The average monthly debt payment is $1,138.49

"While debt is a part of life for the majority of Canadians, it doesn't have to be a permanent fixture," said Su McVey, Vice President, BMO Bank of Montreal. "While interest rates have likely kept debt loads manageable for many households, that picture is poised to change. Developing a debt repayment plan that reduces debt but also accounts for other priorities and financial goals such as savings is essential."

"After the lengthy run-up of the past decade, it's encouraging that many Canadians are planning to rein in their debt growth, as interest rates won't stay low forever," said Mr. Porter. "Household credit growth has slowed this year compared to over the past 10 years."

According to data from Statistics Canada, residential mortgages, typically considered 'good debt' as it is tied to household assets, account for 63 per cent of household liabilities, while consumer credit makes up approximately 28 per cent.

Ms. McVey added that BMO offers a few tools and products Canadians can use to track their household finances and save. For example, BMO MoneyLogic allows Canadians to track and review their spending limits and savings goals in real time. "Once you have a clear idea of where your money is going, it makes it easier to course-correct where you may be over-extending and put a savings plan in place."

About BMO Financial Group

Established in 1817 as Bank of Montreal, BMO Financial Group is a highly diversified North American financial services organization. With total assets of $542 billion as at July 31, 2012, and more than 46,000 employees, BMO Financial Group provides a broad range of retail banking, wealth management and investment banking products and solutions.

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