Bank of Canada Governor Stephen Poloz is again sounding the alarm on household debt levels, saying that Canadians have racked up $2-trillion of personal debt – a huge amount that is impacting the timing of another interest rate hike.
In a speech on Tuesday in Yellowknife, Governor Poloz said Canadian debt levels have been growing for three decades in both absolute terms and when compared to the size of the economy — and about $1.5 trillion of it consists of mortgage debt. The central bank has concerns about the ability of households to keep paying down their high levels of debt when interest rates continue to rise, as is widely expected in the coming months.
Governor Poloz added that the volume of what Canadians owe is an important vulnerability for individuals and the entire economy — and it’s the main reasons why the central bank has been taking a cautious approach to raising its trendsetting interest rate.
The Bank of Canada says current debt levels are due to several factors, including the combination of a strong demand for housing and the prolonged period of low interest rates maintained in recent years to stimulate the economy.
The central bank kept its benchmark interest rate at 1.25% last month as it continued its careful process of determining the best juncture for its next rate hike. Governor Poloz has introduced three rate increases since last July following an impressive economic run for Canada that began in late 2016.
