The governor of the Bank of Canada, Mark Carney, admitted that low interest rates over a prolonged period can cloud financial judgments and encourage borrowers to borrow too much and for too long. The first steps to be taken in fighting increasing personal debt are the regulation and the supervision of the banking and credit industries, but Mr. Carney said interest rate policy can also be used if risks from increased borrowing begins hurting Canada’s economy.
The Bank of Canada also warned that highly indebted Canadians are now vulnerable to a housing price slump. They said that a 10 per cent drop in home prices could generate a 1 per cent decline in consumption. This would significantly affect economic growth. The Bank of Canada’s key overnight rate is now 1 per cent, and its next decision will be announced March 8th.