UPDATE 1-Bank of Canada says household debt is biggest risk

Wed Nov 14, 2012 1:15pm EST
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* Deputy Governor Cote says rates "very stimulative"

* Policy remains stimulative to counter external headwinds

OTTAWA Nov 14 (Reuters) - Monetary policy remains very stimulative in Canada, a senior central bank official said on Wednesday, while also pointing out that excessive household borrowing is the biggest domestic risk to the economy.

The comments in a speech by Bank of Canada Deputy Governor Agathe Cote highlight the dilemma facing the bank as it weighs the need to lift interest rates to curb soaring personal debt against the need to keep the easy money flowing at a time of global uncertainty.

"Monetary policy remains very stimulative to counter external headwinds," Cote said, according to a slide presentation published on the central bank's Web site just before she spoke to a business audience in Rimouski, Quebec.

Europe is stagnating and the U.S. recovery is the slowest since the Great Depression she said, repeating the bank's justification for why it has kept its benchmark interest rate at an extraordinarily low 1 percent for over two years.

Despite that outlook, the bank has been signaling since April that it wants to raise interest rates, the only one in the G7 major economies to do so. Last month Bank of Canada Governor Mark Carney said the need to lift rates had become less imminent while still saying the next move would be up, not down.   Continued...