Royal Bank of Canada anticipates interest rate drop in 2024
Investing.com | Editor Rachael Rajan
Published Sep 07, 2023 10:58
Dave McKay, Chief Executive Officer of the Royal Bank of Canada (TSX:RY) (RBC), expressed confidence on Wednesday that interest rates are likely to decrease in 2024. This potential decrease is expected to relieve the lender's customers when the majority of its mortgage book reprices in 2025 and 2026. McKay conveyed these expectations during his speech at the Scotiabank (TSX:BNS) Financials Summit.
The Bank of Canada had commenced a rate-hiking campaign in March 2022, elevating its overnight lending rate from 0.25% to, most recently, 5%, marking the highest level in 22 years. However, on Wednesday, the central bank maintained rates at this level.
Higher borrowing costs have significantly impacted mortgage growth within Canada's largest banks. Prospective homebuyers have remained hesitant, leading to a slowdown in residential loan growth among the five largest lenders, including RBC and Toronto-Dominion Bank (TSX:TD).
In the fiscal third quarter, growth was reported at 4%, a significant decrease compared to an annual growth of 9.8% a year earlier. Concurrently, the volume of impaired loans in these firms' core Canadian banking businesses has nearly doubled from a year earlier.
McKay also contrasted borrowers in the United States with their Canadian counterparts. He stated that U.S. borrowers are "more resilient than the Canadian consumer," primarily due to many benefiting from 30-year fixed-rate mortgages that don't adjust similarly to home loans in Canada. This resilience has led to persistent strong spending and inflation in the U.S., fueled by a robust consumer base.
In contrast, McKay described Canada's consumer base as more conservative, with growth slowing more rapidly due to increasing mortgage payments leading to a slightly quicker cooling of the economy.
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