1. Tell us about yourself and your role.
With over 30 years of experience, I am Martin Thibodeau, Regional President, British Columbia at RBC Royal Bank, leading a team of more than 8,000 workers and partners in BC, dedicated to providing financial advice and services to almost 2 million personal, small business and commercial clients. In addition to serving on several boards spanning health & wellness, community giving, business, education, climate, and the arts, I am a proud husband and father.
2. The Bank of Canada cut its key interest rate for the first time in more than four years. Will Canadians benefit from this move?
While Canadians will certainly benefit, interest rates remain high. The cut in the overnight rate in June was more akin to the Bank of Canada easing off the economy's brakes than stepping on the gas. Household debt payments will continue to rise over the second half of this year as fixed-rate mortgages renew at higher interest rates. The Bank of Canada's beginning to move interest rates lower is good news. It is a result of inflation showing sustained signs of slowing and increasing the odds that we are getting closer to the end of the adjustment of households to higher interest rates.
3. As the inflation rate ticks higher in May, the BOC's next rate decision for July 24th looks less certain. What are your predictions for the foreseeable future?
RBC Economics' base-case assumption is that the Bank of Canada will cut rates again on July 24th with an expected cut of 100 basis points for calendar 2024 (including the 25-basis point cut in June and the expected cut in July). That expectation is contingent on the economy remaining soft and inflation continuing to drift lower. Per-capita GDP is tracking a decline in Q2 2024 for the 7th quarter out of the last 8. The unemployment rate has increased almost 1 ½ percentage points from lows post-pandemic lockdown, and the upside surprise in May inflation numbers followed four slower readings earlier this year. Interest rates are still set at levels high enough to restrict economic growth. The Bank of Canada estimates that the level of the overnight rate that won't add to or subtract from economic growth (the neutral rate) is somewhere in the range of 2.25% to 3.25%. The current overnight rate at 4.75% is still well above that range, and there is a strong argument that the overnight rate does not need to be as high as it is given a softening economic backdrop.
4. What economic factors may push against inflation's decline?
That's a great question. For one, housing prices could rise. A structural undersupply of housing relative to demand in Canada has worsened as population growth accelerated over the last two years. That will keep a floor under shelter costs for the foreseeable future. Broader inflation pressures are still expected to soften alongside a higher unemployment rate and slower per-capita consumer demand. The breadth of inflation has narrowed in Canada, with the share of products and services seeing abnormally high price growth that has decreased to around longer-run average levels.
5. In the event that homeowners' mortgages collapse, what will the impact be?
The Canadian mortgage market is tightly regulated, prices also remain high, and a structural undersupply of housing is keeping a floor under those prices. Higher equity in housing means more options. It is also why we work with every client to find a tailored solution for each client that provides a holistic approach to their financial wellness.
6. Are banks worried about upcoming mortgage renewals due to recent rate hikes for their clients? What measures do the banks have in place for their customers?
From a macro perspective, we expect the payment hike to be manageable. The adjustment for households renewing 4- and 5-year fixed-rate mortgages individually is large, but the total size of the payment increase economy-wide adds up to roughly 0.2 to 0.3% of total household disposable incomes this year and next. Unlike the initial round of unexpected payment shocks, this one is widely anticipated. We are contacting clients proactively to have these conversations and look at their total financial picture so that clients are best positioned to navigate this moment through a holistic lens. The everyday decisions we make about where and how we save, spend, and give back can often benefit us the most.
7. What is your economic outlook for the rest of the year?
Interest rates are still at levels that are high enough to impact economic growth. RBC Economics expects GDP growth to remain positive over the second half of this year but will continue to decline on a per-person basis. RBC Economics also expects the unemployment rate to increase to 6.5% over the second half of 2024 from 6.2% (as of May). We expect some acceleration in economic growth next year and for the unemployment rate to begin edging gradually lower in 2025. For the calendar of 2024, RBC Economics anticipates that GDP will post a 1.0% increase (well below the rate of population growth), followed by a 1.8% increase in 2025.
8. Is there a solution or strategy to help Canada and Canadians escape such volatile financial times?
Because these times mean different things to different people, it's important that individuals sit down with their financial advisors for an understanding of what this means to them. Take time to explore the tools and resources that will help guide their day-to-day and longer view decisions. Lastly, build an agile plan to help each individual achieve their life goals for today, tomorrow, and the road.
9. RBC has acquired HSBC Canada. What can clients expect from this takeover, and how will it impact customers?
This acquisition will help link Canadian businesses and investors to the Indo-Pacific economy. The acquisition is providing our new clients with award-winning service, access to the largest branch and ATM network, one of the largest networks of advisors across Canada, market-leading digital capabilities, and a leading rewards program. The acquisition is being paired with significant investments in Canada and specifically in BC, where many of your readers are located. RBC will continue to create highly skilled roles and strengthen client services, including more offerings for international banking clients and newcomers. We also intend to contribute even more to Canadian and BC charitable and non-profit initiatives.
10. What message would you like to share with our readers?
We have an unwavering commitment to advocating for diversity, inclusion, belonging, and equity. As a community, we are made better when we create spaces for diverse voices, lived experiences, and points of view. We all have a platform – when we use our platforms to amplify the voices of others and move the needle on inclusion, we are further fueling our economy and society for the better.
