Market Commentary
The household debt to income ratio has hit an all time high – 165%. Yet the Bank of Canada seems to have gone strangely quiet on the subject.
Former bank governor Mark Carey routinely warned of the potential dangers brought by the lure of low interest rates, especially in the housing market.
Recently, though, new governor Stephen Poloz told a banking audience in Washington that it is not the Bank of Canada's job to fix bad debt decisions made by consumers.
It is useful to note how the central bank views its own job. Poloz says lenders, and borrowers themselves, are the first line of defence against bad debt decisions. He says bank's job is to manage inflation and the main tool for doing that is interest rates.
The Bank of Canada cannot separate the low interest rates meant to inspire business borrowing from the low rates that are fuelling the real estate boom. Poloz does say, though, that the Bank of Canada is keeping a very close watch on those household debt levels.
