Vulnerability of indebted Canadian households to rise with rate hike, says PBO

PBO projects household debt service ratio to reach 16.3 per cent in 2021



OTTAWA – A new analysis says the expected, gradual rise of interest rates is poised to lift the financial vulnerability of Canadian households well above levels seen in the last three decades.

The parliamentary budget officer’s report is predicting that households will be stretched even further when it comes to their capacity to pay down their debt.

The PBO projects the household debt service ratio to reach 16.3 per cent in 2021 – which would be nearly 3.5 percentage points higher than the 12.9 per cent average seen between 1990 and 2017.

The study says the debt service ratio has crept upwards over the last two years to hit 14.2 per cent early this year.

The report comes amid concerns about the financial vulnerability of increasingly indebted households to adverse economic events such as a severe recession.

The Bank of Canada has been signalling that it’s moving closer to hiking its historically low benchmark interest rate as the economy strengthens.

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