Poloz says Canadians owe $2 trillion as central bank mulls next rate hike

OTTAWA — Canadians have amassed a $2-trillion mountain of household debt that’s casting a big shadow over the timing of the Bank of Canada’s next interest rate hike, governor Stephen Poloz said in a speech Tuesday in Yellowknife.

To Poloz, the “sheer size” of debt burden also means its associated risks to endure for a while, although he’s optimistic the economy can navigate them.

The debt pile, he said, has 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 currently 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 their rise, as is widely expected over the coming months.

“This debt has increasing implications for monetary policy,” he said in his address to the Yellowknife Chamber of Commerce.

Poloz has introduced three rate hikes since last July following an impressive economic run for Canada that began in late 2016.

But the central bank stuck with its benchmark rate of 1.25 per cent last month as it continued its careful process of determining the best juncture for its next hike. The bank’s next announcement is May 30, but many experts only expect Poloz’s next increase to come at July’s meeting.

Poloz said Tuesday that the volume of what Canadians owe is one of the key reasons why the bank has been taking a cautious approach to raising its trend-setting rate. He called it an important vulnerability for individuals and leaves the entire economy exposed to shocks.

“This debt still poses risks to the economy and financial stability, and its sheer size means that its risks will be with us for some time,” Poloz said.

“But there is good reason to think that we can continue to manage these risks successfully. The economic progress we have seen makes us more confident that higher interest rates will be warranted over time, although some monetary policy accommodation will still be needed.”

Poloz said debt is a natural consequence of 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 governor also provided detail on issues the bank is examining as it considers the timing of its next rate increase.

If it raises rates too quickly, the bank risks choking off economic growth, falling short of its ideal inflation target of two per cent and could lead to the type of financial stability risk it’s trying to avoid, he said.

But if the governing council lifts the rate too slowly, Poloz said it could intensify inflationary pressures to the point it overshoots the bank’s bull’s-eye. Poloz added that moving too gradually could also entice Canadians to add even more debt and further boost vulnerabilities.

In his speech, he also noted several other areas of concern the bank is monitoring closely as it considers future hikes. They include the economic impacts of stricter mortgage rules, the ongoing uncertainty about U.S. trade policy, the renegotiation of the North American Free Trade Agreement and a number of competitiveness challenges faced by Canadian exporters.

“These forces will not last forever,” Poloz said.

“As they fade, the need for continued monetary stimulus will also diminish and interest rates will naturally move higher.”

Just Posted

WATCH: A rocking time at the Benefit on the Bridge in Red Deer

The third annual event is a fundraiser for the CentreFest Street Performer Festival

WATCH: Spring on the farm comes to Red Deer

Sunnybrook Farm Museum kicks off a summer of education and fun

Woman hurt, driver arrested in two vehicle crash in Red Deer

Police say one vehicle involved was stolen

North and South Korean leaders hold surprise 2nd summit

SEOUL, Korea, Republic Of — North Korean leader Kim Jong Un and… Continue reading

WATCH: Red Deer shows respect at annual celebration

Central Alberta Sexual Assault Suport Centre holds Respect Day at city hall park

WATCH: Throwing punches and kicks at the Western Canadian Karate Championships

More than 300 athletes competes at the event in Red Deer Saturday

Red Deer condo owner frustrated by property crime told to take down cameras

For the fourth time this month, Christopher Neitz woke up to his… Continue reading

Woman hurt, driver arrested in two vehicle crash in Red Deer

Police say one vehicle involved was stolen

WestJet, pilot’s union agree to settlement process with mediator

CALGARY — The threat of a strike by WestJet pilots appears to… Continue reading

Teacher out of hospital after stopping school shooting

NOBLESVILLE, Ind. — An Indiana science teacher was released from a hospital… Continue reading

Imperfect answers: A son killed in action and his parents ask why

BERTHOUD, Colo. - Ten days since Gabe was killed. Bob and Donna… Continue reading

From uncertain import to borderline superstar

They were just teenagers, and playing hockey on an international stage was… Continue reading

Snoop Dogg lauds Canada’s growing cannabis industry at Montreal tech conference

MONTREAL — Canada is more advanced than the United States regarding its… Continue reading

More LGBT issues loom as justices near wedding cake decision

WASHINGTON — A flood of lawsuits over LGBT rights is making its… Continue reading

Most Read


Five-day delivery plus unlimited digital access for $185 for 260 issues (must live in delivery area to qualify) Unlimited Digital Access 99 cents for the first four weeks and then only $15 per month Five-day delivery plus unlimited digital access for $15 a month