not hard to see a world where interest rates are persistently higher than what people have grown used to. what adjusting to higher interest rates looks like globally, the adjustment to higher interest rates is well underway. risk - free long - term rates in a range of major economies have risen by about 300 basis points since mid2021, when global inflationary pressures started to build. it's therefore become more expensive for individual and corporate borrowers to service their debts. at the same time, financial institutions are facing higher funding costs. 3 this all leaves less wiggle room for the global financial system if a shock, such as an abrupt tightening of financial conditions, were to occur. and we've already seen a few of these shocks. there was the stress in the uk gilt market last autumn. and there were the stresses that emerged in the us and swiss banking sectors this past march. both 2 / 5 bis - central bankers'speeches episodes were triggered, in part, by a sharp rise in bond yields that caught parts of the financial system off guard. those earlier stresses didn't lead to stress in the canadian financial system. but, as a small open economy, canada likely wouldn't be immune if severe global stress were to re - emerge and persist. as we outlined in the fsr, such severe stress could interact with existing vulnerabilities, like high household debt. to make sure the canadian financial system remains resilient to future stress, proactive adjustments to higher interest rates need to continue. the adjustment so far we know from the data, including those from responses to our surveys, that canadians are adjusting - and feeling some pressure - as they juggle the combined effects of inflation and higher interest rates. the pace of credit growth among households has slowed considerably since the bank started raising interest rates. in recent months, household credit growth on a year - overyear basis has been about 3 %, the slowest pace since the early 1990s. we've seen a big drop in applications for residential mortgages, while banks'mortgage approval rates remain roughly unchanged. this suggests the slowdown is being driven by a drop in demand for credit rather than by a tightening of lending standards. that lines up with the slowdown we've seen in consumer spending, especially on goods people tend to buy on credit. while households aren't adding to their debt levels as much, some are finding it harder to deal with existing debt. delinquency rates on credit cards

for and adjust to a potentially higher interest rate environment. i'll touch briefly on why we could end up in such a world going forward. then i'll touch on some of the adjustments we're already seeing and what else we could see as the process continues. 1 / 5 bis - central bankers'speeches i'm aiming to be brief to allow plenty of time for questions and discussion. why interest rates could stay higher than we're used to let me start by saying the bank's monitoring of the financial system doesn't lead to a forecast of likely outcomes for the financial system or the economy. so, i want to be clear that when i talk about interest rates, i'm not making predictions about the path for monetary policy. i'm not here to tell you whether our policy rate has peaked or when it might start going down. what i will share with you are those factors we see as having an impact on the direction of long - term interest rates, some of the reasons we could see rates stay higher for longer and why it's important to adjust proactively to that possibility. the bank's policy interest rate is currently at 5 %. but from the global financial crisis through the first two years of the covid - 19 pandemic, the policy rate was close to zero much of the time, and it never topped 1. 75 %. in fact, the trend for a range of interest rates that affect borrowing costs in the financial system was downward for several years too. my former colleague, deputy governor paul beaudry, spoke about the reasons for this in a speech last june. 2 he described the structural forces at a global level that, for many years, combined to push long - term interest rates lower in canada and other advanced economies. these forces included aging baby boomers that were saving more, china and other developing nations joining the global economy and fewer attractive investment opportunities for businesses. paul also explained that some of these forces look to have peaked and could start reversing. this would put upward pressure on interest rates. we also look now to be in an era of higher levels of government debt. and geopolitical risks, such as an escalation of the war in ukraine or the war in israel and gaza, could push rates higher globally - if they were to affect energy prices and supply chains in ways that could have a lasting impact on inflation. all this obviously involves a lot of uncertainty. but it's