OREANDA-NEWS. The surprise overnight rate cut announced by the Bank of Canada may have a slightly positive near-term impact on Canadian credit card ABS, Fitch Ratings says. Longer term implications for the Canadian consumer and securitized Canadian credit card receivables remain to be seen.

The cut to Canada's key rate has the potential to translate into lower interest rates for variable debt such as adjustable-rate mortgages, home equity loans/lines of credit, and credit cards. Reduced debt burdens off the heels of a decline in these rates will increase disposable income for consumers. In turn, this could result in lower charge-offs and higher monthly payment rates for issuers of Canadian credit card-backed debt.

Canadian credit card ABS collateral metrics continue to exhibit strong performance, highlighted by low levels of delinquencies and charge-offs as well as high monthly payment rates, which are often in excess of the 30% range. Over the near term, we anticipate Canadian credit card pool performance and ratings to remain stable even in stressed interest rate environments.

Fitch currently rates three Canadian credit card programs: CIBC's Cards II Trust, President's Choice's Eagle Credit Card Trust, and Royal Bank of Canada's Golden Credit Card Trust.

Bank of Canada surprised the markets on January 21st when it announced the decision to lower its target for overnight rates from 1% to 0.75%. The central bank's decision was intended to soften the impact of the decline in oil prices on the economy and signaled that further rate cuts are possible.