The Globe and Mail reports in its Wednesday edition that the Bank of Canada says high levels of household debt could destabilize the economy as rates start to rise.
The Globe's Mark Rendell and Rachelle Younglai write that BOC deputy governor Paul Beaudry says Canadians who stretched their finances to buy into the white-hot real estate market are highly exposed to rising debt servicing costs. He says the risk of a housing market correction has also increased of late. The average home price has jumped more than 30 per cent since the start of the pandemic.
The Globe says the BOC is preparing to raise interest rates to counter galloping inflation, which hit an 18-year high of 4.7 per cent in October. The Globe says the BOC expects to raise its policy interest rate, which has been at 0.25 per cent since the start of the pandemic, perhaps as early as April.
Mr. Beaudry says: "The debt that households accumulated at unusually low interest rates will stay with them well into the future. In the meantime, interest rates can be expected to rise as the effects of the pandemic dissipate and excess capacity in the economy is fully absorbed."
He says the financial system itself, however, remains in good shape.
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