High Levels of Canadian Debt Worry BoC

A senior Bank of Canada official says the central bank is looking at how the high levels of household and public debt could pose a challenge to how it manages monetary policy.

In a speech to the Manitoba Association for Business Economists, deputy governor Lawrence Schembri says high debt levels mean there is less space, on average, for more borrowing to stimulate demand.

The central bank is also looking at what the gradual decline in interest rates over the past 25 years and a reduction in the estimates of the “neutral interest rate” mean for the monetary policy framework.

Schembri says the trend rate of economic growth has been decreasing and that could also pose challenges because cyclical forces that normally help propel an economy out of an unexpected downturn may be less powerful.

The Bank of Canada sets its key interest rate target with the goal of keeping inflation at two per cent.

It has raised its target for the overnight rate three times in the past year after cutting it in response to a drop in oil prices. The benchmark rate, which influences the prime rates at Canada’s big banks, stands at 1.25 per cent.

via Financial Post

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza