UPDATE 2-Bank of Canada sees limit to low interest-rate strategy

Thu Jan 10, 2013 6:01pm EST
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* Macklem suggests outlook weaker than previously thought

* Says BoC may need to hike rates amid soaring personal debt

* Sees signs of moderation in housing, debt

* Macklem seen as strongest candidate for next BoC governor

By Randall Palmer

KINGSTON, Ontario, Jan 10 (Reuters) - High household debt is stretching the Bank of Canada's low interest rate strategy to the limit, Senior Deputy Governor Tiff Macklem said on Thursday, hinting that the central bank will retain its bias toward higher interest rates.

Macklem, considered the strongest candidate to be the next governor of the central bank after Mark Carney leaves later this year, said keeping rates low for the longest period since the early 1950s was the right thing to do during the global financial crisis and in its aftermath.

"It was the right thing to do... That strategy is reaching its limits and rising levels of household indebtedness have created a vulnerability," he said in response to a question from the audience following a speech at Queen's University in Kingston, Ontario.

Macklem said in his speech that the Canadian economy will likely be more sluggish than expected in the near term but that momentum will pick up throughout 2013.   Continued...