Money: Bankruptcies rising with Cdn interest rates - PressFrom - Canada
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MoneyBankruptcies rising with Cdn interest rates

12:05  11 january  2019
12:05  11 january  2019 Source:   msn.com

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Bankruptcies rising with Cdn interest rates© Getty

OTTAWA - Bankruptcies are up in Canada, the head of the Bank of Canada said this week, and he expects they'll rise even more as the central bank continues to hike interest rates.

Governor Stephen Poloz said he hears just how difficult higher borrowing costs can be straight from the people feeling the pain.

"We're acutely aware that our decisions affect everybody — they affect the financial well-being of everybody and many Canadians are carrying a high debtload," Poloz told reporters Wednesday after holding the bank's key interest rate at 1.75 per cent. "I don't have to work hard to remind myself of that. I get daily correspondence from people explaining to me what their situation is."

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The number of people filing for bankruptcy in the U.S. and U.K. has been falling steadily for the past few years, but charities and analysts are concerned that homeowners could get in trouble if the U.S. Federal Reserve and the Bank of England raise interest rates .

Rising interest rates appear to be taking a toll on Canadians' finances as the total number of insolvencies filed under the Bankruptcy and The Office of the Superintendent of Bankruptcy Canada says the number of consumer insolvencies in November rose by 5.2 per cent from a year ago

According to the bank, Poloz personally responds to emails and letters addressed to him from the public. Last year, for instance, about 200 people reached out to him directly. The most common themes of the messages are the state of the Canadian economy, inflation and interest rates, a bank spokeswoman said. If they aren't abusive and they include return addresses, he answers them.

Poloz's decision to leave rates unchanged this week is likely just a pause on the bank's rate-hiking path as the country deals with what he described as a temporary economic setback from a sharp decline in oil prices.

The central bank will continue raising rates once Canada gets past the soft patch and the economy builds new momentum, he said. A stronger economy has encouraged Poloz to raise the rate target five times since mid-2017 to keep inflation from eventually running too hot.

Insolvencies rise on higher interest rates

Insolvencies rise on higher interest rates Rising interest rates appear to be taking a toll on Canadians' finances as the total number of insolvencies filed under the Bankruptcy and Insolvency Act increased by 5.2 per cent in November from the prior year. THE CANADIAN PRESS/Adrian Wyld Rising interest rates appear to be taking a toll on Canadians' finances as the total number of insolvencies filed under the Bankruptcy and Insolvency Act increased by 5.2 per cent in The Office of the Superintendent of Bankruptcy Canada says the number of consumer insolvencies in November rose by 5.

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So rising interest rates haven’t always spelled negative returns for bonds, and even when they do, the losses have been small, especially relative to stock With interest rates at historic lows during the past 8 years, many have chased extra yield by investing in assets such as dividend-focused stocks

But in recent months, the number of Canadians who have run into financial trouble has edged up. Insolvencies have seen a slight increase after spending nearly a decade at very low levels. Following a long period of cheap borrowing, Canadians have amassed record piles of debt.

"On bankruptcy statistics, I understand that they have picked up," Poloz said when asked about the recent figures. "My understanding of the data points is that they're picked up from an extraordinarily low level. So, there is, in any point in time, always a certain number of unfortunate folks who may lose their job or what have you and go through this process.

"And it wouldn't be surprising to see things pick up a little bit when interest rates have risen."

Poloz added the bank has deliberately been very careful and very gradual in its hiking, while reminding people the low-rate era wouldn't last.

The Bank of Canada has said it will likely keep pushing its trend-setting rate higher until it hits the so-called "neutral" level between 2.5 and 3.5 per cent. That would mean between three and seven more quarter-point hikes.

Central bank expected to hold interest rates

Central bank expected to hold interest rates Central bank expected to hold interest rates

The artificially low interest rates on government debt and increased investor demand for yield has pushed junk bond prices higher and rates lower If a recession is combined with rising rates (known as stagflation) the interest coverage ratio will fall below the lows of 2001 and a massive flood of

Over 30 per cent of Canadians say they’re concerned that rising interest rates could push them close to bankruptcy , according to a nationwide survey conducted by Ipsos on behalf of MNP, one of the largest personal insolvency practices in the country.

Earlier in the week, the latest federal figures showed that consumer insolvencies filed under the Bankruptcy and Insolvency Act rose 5.1 per cent in November compared to 12 months earlier.

Bankruptcies rising with Cdn interest rates© Provided by thecanadianpress.com Stephen Poloz, Governor of the Bank of Canada, holds a press conference at the Bank of Canada in Ottawa on Wednesday, Jan. 9, 2019. Bankruptcies are up in Canada, the head of the Bank of Canada said this week, and he expects they'll rise even more as the central bank continues to hike interest rates. THE CANADIAN PRESS/Sean Kilpatrick

Oil-producing provinces saw some of the biggest increases — they're the parts of the country hit hardest by the low price of the commodity. Alberta led the way with 20.9 per cent more insolvencies compared to a year earlier.

Insolvency numbers are made up of both bankruptcies and "proposals," which the law describes as offers to creditors to settle debts under conditions other than existing terms.

In the 12 months leading up to November, Canada saw a 12.1-per-cent increase in the number of proposals and a 3.6-per-cent decrease in bankruptcies.

Bank of Canada holds rates, cuts growth forecasts on low oil

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US interest rate rise signals end of ultra-low borrowing costs. “I do think eventually that higher interest rates are going to have an impact on rates for car loans, so that may be The USA also has record amounts of citizens defaulting for student debt which is non-dischargeable under bankruptcy .

Interest Rate in the United States averaged 5.69 percent from 1971 until 2018, reaching an all time high of 20 percent in March of 1980 and a record low This page provides the latest reported value for - United States Fed Funds Rate - plus previous releases, historical high and low, short-term forecast

"We've started to see a trend that's going up and that, coupled with high debt ratios, obviously are putting a strain on household spending," said BMO economic analyst Priscilla Thiagamoorthy.

Benjamin Tal, CIBC Capital Markets' deputy chief economist, said a very modest increase in insolvencies started in early 2018.

"If you ask me what's the direction for the next year? Clearly, it's up," Tal said. "But it's not going to be a terrible-type situation. It will be kind of just an adjustment to higher interest rates."

After climbing during the 2008-09 recession, insolvency numbers slid back down and have stayed low for nearly a decade.

Tal said a bigger concern is that higher borrowing costs could force people to spend more money on financing their debt rather than on consumption. A drop in consumption can affect the economy as a whole and eventually lead to lost jobs, he added.

Unemployment is always the No. 1 reason for delinquencies, he said.

Tal said he used to produce a regular bankruptcy report after the recession, but he eventually stopped because the numbers were flat for many years.

"There was nothing to write about — it was boring," he said. "Maybe now I have to renew it."

World economy forecast to slow in 2019 amid trade tensions.
World economy forecast to slow in 2019 amid trade tensions

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