Close X
Thursday, November 14, 2024
ADVT 
National

High household debt still a key risk to Canadian economy: Bank of Canada

Darpan News Desk The Canadian Press, 10 Dec, 2014 10:59 AM

    OTTAWA — The Bank of Canada is once again pointing a finger at mounting household debt as one of the biggest weak spots in the country's economic armour.

    The central bank released its semi-annual financial system review Wednesday to underscore key vulnerabilities and to warn of looming threats.

    However, the report said despite the red flags the economy continued to show signs of a "broadening recovery" and its overall assessment of Canada's financial stability remains roughly unchanged since the summer.

    "We judge that the probability of an adverse shock has eased since our June (financial system review)," Bank of Canada governor Stephen Poloz said in a statement.

    "This mitigates our observation that some financial vulnerabilities appear to be edging higher."

    In addition to rising consumer debt, the review warned of the potentially overvalued housing market, increased risk taking in financial markets and emerging threats, such as weakening commodity prices and the plunging price of oil.

    The bank also laid out possible pitfalls that threaten Canada's position, such as a sudden rise in long-term interest rates, increased financial stress in Europe and China, and a sharp correction in house prices. It reiterated, however, its expectation that Canada's housing market will have a soft landing.

    The Bank of Canada suggested the housing market may be overvalued by 10 to 30 per cent.

    Earlier this month, Poloz maintained its trend-setting interest rate at one per cent, where it has been since September 2010.

    The low rate has encouraged Canadians to accumulate piles of debt since the recession as a way to help stimulate the battered economy. Most economists and analysts don't expect the rate to budge until at least the middle of next year.

    In the meantime, Canadians will continue to take advantage of cheap credit.

    The bank's report cautioned that Canada's household debt-to-income ratio is near a record high, conditions that may have been partly fuelled by stiff competition among lenders.

    The situation, it said, may have encouraged some Canadians to borrow too much and led financial entities to lend to riskier clients.

    The review said 12 per cent of Canadian households as "highly indebted." The bank said this percentage has been steady in recent years, but is nearly double the level in 2000.

    It also said these households carry about 40 per cent of the country's overall consumer debt load.

    Young homeowners, the bank added, have become even more vulnerable to negative shocks to income and to higher interest rates.

    "Among the current generation of young households, those who own homes carry more mortgage debt relative to income than previous generations did at the same age," the review said.

    MORE National ARTICLES

    Is 2015 the year the Bank of Canada finally raises its key interest rates?

    Is 2015 the year the Bank of Canada finally raises its key interest rates?
    OTTAWA — After 18 months on the job, Bank of Canada governor Stephen Poloz has yet to wield the primary tool at his disposal: the key interest rate.

    Is 2015 the year the Bank of Canada finally raises its key interest rates?

    Today on the Hill: Man accused of impersonating soldier due in court

    Today on the Hill: Man accused of impersonating soldier due in court
    OTTAWA — The man accused of impersonating a soldier at the National War Memorial on Remembrance Day is due in court today.

    Today on the Hill: Man accused of impersonating soldier due in court

    Canada only half way to 2020 emissions goal as oil and gas emissions rise

    Canada only half way to 2020 emissions goal as oil and gas emissions rise
    OTTAWA — Canada remains well short of meeting its international 2020 climate change commitment, Environment Canada reported Monday, even if the economy tanks and global oil and gas prices remain on the skids.

    Canada only half way to 2020 emissions goal as oil and gas emissions rise

    Ottawa jihadi kept to himself, didn't have close friends, says acquaintance

    Ottawa jihadi kept to himself, didn't have close friends, says acquaintance
    OTTAWA — John Maguire, a former Ottawa man who appears in a new extremist recruiting video, seemed to lack close friends in Canada and kept his distance from others, says an acquaintance who used to pray with him.

    Ottawa jihadi kept to himself, didn't have close friends, says acquaintance

    Canada to train Ukrainian military cops as Ottawa seeks closer ties: Nicholson

    Canada to train Ukrainian military cops as Ottawa seeks closer ties: Nicholson
    OTTAWA — The Harper government signalled Monday it wants to create deeper defence ties with Ukraine, signing a declaration that could lead to broader military co-operation in one of the most volatile parts of the globe.

    Canada to train Ukrainian military cops as Ottawa seeks closer ties: Nicholson

    UNHCR counting on Canada to increase commitment to Syrian refugees

    UNHCR counting on Canada to increase commitment to Syrian refugees
    OTTAWA — A global call for help resettling more than 100,000 Syrian refugees must be answered in part by Canada, the United Nations refugee agency representative in Ottawa says.

    UNHCR counting on Canada to increase commitment to Syrian refugees