The Bank of Canada said vulnerabilities from high household debt and elevated housing prices have increased and pose key risks to the Canadian financial system.
In its latest financial system review, the central bank said Thursday the twin factors have increased the downside risk to economic growth as rising rates meant to counter inflation increase the chance of households having to divert consumption towards debt repayments.
“In an environment of tightening financial conditions, high global inflation and increased geopolitical tension, financial system vulnerabilities have become more complex, and risks have become more elevated,” the bank said in its report.
Assessing the vulnerabilities from high household debt has also become more complex over the past two years, as household finances have generally improved even as debt levels increase, it said….