The governor of the Bank of Canada warned Wednesday that
consumers and banks should not be lulled into a false sense of security because
of low interest rates.
Bank of Canada governor Mark Carney warned again Wednesday
of rising household debt.
In a speech in Toronto,
Mark Carney, said both parties have a responsibility not to take risks that
could derail the recovery.
Consumers are helping Canada’s economic recovery outpace
that of its G7 partners, Carney said, but that the recovery remains vulnerable
to over-indulgence.
"When risks are still manageable is precisely the best
time to act," Carney told a business audience. "We must be vigilant,
and all parties must fulfill their responsibilities."
The Bank of Canada’s extraordinary low-interest rate
policies are making it possible for Canadians to take on more debt, he said,
but rates will increase and loans affordable today could prove unaffordable in
the future.
Banks should be particularly vigilant against risky loans,
Carney said, pointing out that even good loans became a problem during the U.S. subprime
mortgage fiasco.
Still, while cautioning against unrestrained borrowing,
Carney also said Canada's
recovery may be more dependent on domestic spending because of lagging U.S. demand for
Canadian exports, which could mean the rebound will be slower than usual.
The central bank has said it expects to keep its benchmark
rate at a record low of 0.25 per cent at least until June. The rate has been
that low since April, leading to a rise in the housing market that some
economists have warned could become a bubble.
Last week the bank described growing household debt as now
the biggest risk to the country's financial system, even though was still
"relatively low" and not likely to become so great that it could
undermine the stability of commercial banks.
