Bank of Canada singles out household debt as ‘biggest domestic risk’

Some see signs that Carney is ready to raise interest rates soon

The Bank of Canada thinks interest rates are fine where they are, at least for now. It announced today that it will hold the key rate at one per cent, where it’s been since September 2010, and didn’t discuss possible hikes. Those accustomed to the central bank’s penchant for dulling the news got the message: ”the Bank is a bit less dovish,” reads a CIBC note, which predicts that “markets will pick up on the slightly improved change in tone on the economy, and might move forward the implied date for the first rate hike.”

The bank, in fact, said it believes the Europeans will manage their public debt mess without bringing down the system, and that the Canadian economic outlook has ”marginally improved,” in part because the U.S.  is doing a little better.

But another big reason to believe Mark Carney may be closer to a rate hike than previously thought, is the bank’s statement about Canadian wallets:

Canadian household spending is expected to remain high relative to GDP as households add to their debt burden, which remains the biggest domestic risk. 

As Tamsin McMahon wrote a couple of weeks ago in Maclean’s, Canadians owe an average of $1.53 for every dollar they earn–just below where American debt stood when housemageddon hit south of the border. And there’s little question that record-low interest rate have encouraged Canadian borrowing, much as they did in the U.S. under Alan Greenspan, who is widely blamed for bringing America from the dot-com bust to the housing crisis. Up here, though, it’s hard to point the finger against Carney, whose hands are tied by a lucklustre global economy, the Fed’s decision to keep U.S. rates low through 2014, and rising commodity prices, which are already pushing up the loonie and hurting exports and the manufacturing sector.

Still, the bank sounded an upbeat note—and that may indicate that the rate hike the housing sector very much needs may be closer than we dared hope for.




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Bank of Canada singles out household debt as ‘biggest domestic risk’

  1. This housemageddon wouldn’t happen if it weren’t for homebuyers stupidity.  They should hold the keys for driving down home purchase costs.  Less than 20 years ago average homes were in the mid hundred thousands.  Even with two income earners applying the banks were more than conservative in issuing a pre approval ceiling.  Now homes average are around the half million dollar level. For what ? Location and new finishes.  They are being duped.  When the bubble bursts – we the home owners will be holding the bag.  Greed seems to have no limits when it comes to purchasing a home.  Real estate agents actually “worked” and “earned” their 5 percent – now it- they are the overnight multi- million czars.  They can earn more in a few average home sales a year than probably the home buyers 2 incomes combined annually.  The consumer should wise up – lower the commissions and drive down the prices or at least stablilize what is there by buying elsewhere or taking their business elsewhere.  Stop being duped people. 

    • it’s not only the homebuyers’ fault but the big banks are too greedy; they are the ones who dictate the conditions of mortage, buyers are just getting into what banks allowed them to get into…

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