Bank of Canada holds rates steady, but flags household debt risk

Wed Dec 2, 2015 12:32pm EST
 
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By Randall Palmer and Leah Schnurr

OTTAWA (Reuters) - The Bank of Canada held interest rates steady as expected on Wednesday, but warned of rising vulnerabilities in the household sector, where debt levels have climbed as consumers take advantage of low borrowing costs.

The Canadian dollar firmed following the central bank's policy statement, which was seen by some market players as less dovish than expected given news this week that the economy shrank in September. [CAD/]

"There were some who thought the bank would sound a bit more downbeat on the outlook," said Doug Porter, chief economist at BMO Capital Markets.

The bank kept its overnight interest rate at 0.5 percent, noting that Canadian and global growth is evolving broadly in line with its October outlook.

While warning that vulnerabilities in the household sector continue to edge higher, it said overall risks to financial stability are evolving as expected.

The most recent reading of Canadian household debt relative to income was at a record high, as the housing market continues to rise in Toronto and Vancouver.

Some critics have said the bank is spurring Canadians to take on more debt than they can carry, especially once rates rise.

The central bank, which cut rates twice this year as the economy was hit by cheap oil prices, has said there was a greater risk in not acting to support the economy.   Continued...

 
A man is reflected in a window while walking past the Bank of Canada office in Ottawa, Canada July 16, 2015. REUTERS/Chris Wattie