Bank of Canada says credit growth slowing, but risks remain

Mon Feb 11, 2013 5:04pm EST
 

OTTAWA (Reuters) - Canadians have taken on debt at a slower pace recently, but record-high personal debt remains a risk to the financial system and if the problem persists the central bank could hike interest rates, a senior Bank of Canada official said on Monday.

The central bank has described the heated housing market and indebted consumers as the biggest domestic threat to the Canadian economy, although there have been signs of cooling. Last month Moody's Investors Services cut the ratings of six Canadian banks due to these concerns.

"The growth of household credit has shown signs of moderating in recent months," Bank of Canada Deputy Governor Timothy Lane said in the prepared text of a speech he was delivering at Harvard University in Cambridge, Massachusetts.

"The momentum in house price growth, sales of existing homes, and new construction has also moderated. Nonetheless, financial system risks associated with household imbalances remain elevated."

Lane warned household spending could still regain momentum or, conversely, there could be a sudden weakening.

The government has intervened four times in the mortgage market to discourage excessive borrowing and the banking regulator has also pressed banks to adopt stricter mortgage lending practices.

"If such targeted prudential measures turned out to be insufficient, monetary policy could also be used, within a flexible inflation-targeting framework, as a complementary instrument to address financial imbalances. So far, though, that has not been necessary in Canada," Lane said.

(Reporting by Louise Egan and Randall Palmer; Editing by Chris Reese)

 
Joggers run past the Bank of Canada building in Ottawa June 5, 2012. REUTERS/Chris Wattie