High household debt and imbalances in the housing market remain the biggest vulnerabilities to Canada’s economy, according to the country’s central bank.
In its twice yearly Financial System Review, the Bank of Canada said Thursday that these vulnerabilities “remain elevated,” even though policy measures have started to make an impact.
“The vulnerability related to high household indebtedness has begun to ease. Incomes continue to rise and household credit growth has slowed due to higher interest rates and policy measures aimed at mortgage financing and housing," the bank said in a written statement. “Because of the sheer size of the stock of debt, however, this vulnerability will persist for some time.”
The Bank of Canada has raised interest rates three times since July last year and is expected to make another hike at its policy meeting next month.
Even though house price growth has slowed, led by declines in the Greater Toronto Area, the bank said condominium markets in the Toronto and Vancouver areas remain strong, with “some evidence of speculative activity.”
“Overall, the vulnerability associated with housing market imbalances has shown signs of lessening but remains elevated,” the central bank said.
Bank of Canada Governor Stephen Poloz added that policymakers have been closely watching these “two main vulnerabilities” and is encouraged by signs of easing.
Finally, the central bank highlighted that cyber attacks are the third biggest threat facing an “interconnected financial system,” and said the central bank has been working with major banks and Payments Canada to ensure that key payment systems are able to recover quickly from cyber attacks.
