December 16, 2009 / 5:56 PM / 8 years ago

Bank of Canada urges vigilance on household debt

OTTAWA (Reuters) - Bank of Canada Governor Mark Carney on Wednesday downplayed talk of a domestic housing bubble but warned home buyers and banks to avoid excess household debt, saying policy makers could take action to manage debt levels if necessary.

In a speech addressing concerns of an overheated housing market, Carney repeated that Canadian household debt has risen sharply relative to income but said the risks to the financial system are small. “At present, the risks arising from the Canadian household sector are relatively low. Indeed, by some measures, Canadian household finances appear quite healthy,” he said.

The central bank will monitor the credit profile of Canadian households and together with the government and regulators “take appropriate actions” if necessary, Carney said. The bank has pledged to hold its key interest rate unchanged at 0.25 percent until the end of June unless inflation gets off track.

He put the onus on individuals to ensure they take out mortgages they will still be able to afford in “ordinary times” when the bank hikes its interest rates again, without elaborating on the timing of that.

Lenders, likewise, should carefully monitor risk from borrowers “and not take false comfort derived from mortgage insurance and past performance of household credit,” he said.

Reporting by Louise Egan; editing by Randall Palmer

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