Bank of Canada sees growing risk from highly-indebted households

Be the First to Comment Read

Bank of Canada sees growing risk from highly-indebted households

Bank of Canada sees growing risk from highly-indebted households
Image source: © Icefields | Megapixl.com

Highlights

  • The Bank of Canada increased its policy rate to 1.5% from 1.0% last week.
  • This was its second consecutive 50-basis point hike.
  • It signaled an aggressive tightening path ahead as it looks to curb inflation at a 31-year high.

The Bank of Canada on Thursday said the country's financial system faced an increased risk from highly indebted households, notably the rising number of people who have stretched to buy homes at elevated prices and are now vulnerable to rate hikes.

"The Bank is paying particular attention to the fact that a greater number of Canadian households are carrying high levels of mortgage debt," it said in an annual financial system review, highlighting a sharp increase in high ratio mortgages.

"These households are more vulnerable to declines in income and rising interest rates."

The central bank said assessing the ongoing risks tied to the high household indebtedness had become more complex, but overall "the vulnerability has increased."

Also Read: 5 TSX uranium stocks to buy as demand for Canada supplies rise

But while overall risks to Canada's financial system have become more elevated in the last year amid geopolitical tensions, high inflation and rising interest rates, key institutions remain resilient, the bank said.

The Bank of Canada increased its policy rate to 1.5% from 1.0% last week, its second consecutive 50-basis point hike, and signaled an aggressive tightening path ahead as it looks to curb inflation at a 31-year high.

What has Bank of Canada said?

Housing prices surged in Canada amid the pandemic, rising more than 50% in two years, but the market has cooled slightly in recent months. The bank said it was too soon to tell if the pullback was temporary or "the beginning of a substantial correction in prices."

Also Read: DOL & FTS: 2 TSX stocks to buy as World Bank warns of stagflation

The Canadian dollar weakened to 1.2604 to the greenback, or 79.34 US cents, down 0.4% on the day. 

Disclaimer

Speak your Mind

Featured Articles

We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it. OK