The Bank of Canada warned that household vulnerabilites have worsened over the past year and could lead to stress in the financial system as borrowing costs soar and highly indebted borrowers struggle to service their debts.
Higher interest rates have already slowed real estate activity, with property sales declining nationwide and home prices falling in some of the country’s hottest markets such as the Toronto suburbs. Several private sector economists have forecast double digit percentage declines in home prices this year, but the central bank said it was too soon to say whether this was the start of a substantial correction.
“If the shock is large enough to cause many households to be in this situation, the size of the impact could create a negative feedback loop between the real economy and the financial system,” said the report. “The likelihood of this risk materializing and its impact on the economy are greater today than in the past.”
In the event of a “severe and prolonged recession” Canadian banks would experience a significant hit to their capital buffers, but they would likely be able to continue lending to businesses and households, the bank said. This is supported by sound mortgage underwriting practices, solid capital ratios and a “robust capacity to generate revenues even in times of stress.”
Still, companies could face challenges servicing their debt if the economy moves into recession, the bank said: “The direct impact of higher interest rates on the financing costs of most publicly listed firms will likely be small but could be problematic if higher rates are accompanied by a shock to firms’ revenues.”
The BoC is much like my Italian mamma who would enthusiastically force feed me only to then turn around and tell me I should lose weight.
The bankofcanada and the JustinTrudeau Liberals created this mess.
Now the Poilievre plan to battle inflation, in tandem with a contrite Bank of Canada is the only responsible way forward. Unfortunately, the Trudeau-Singh non-aggression pact keeps these playboy big spenders in charge wwhile Inflation runs up to 1970's levels
The Bank of Canada bought billions of Trudeau-Freeland issue bonds in an artificial exercise that 'secured' the crazed spending of the federal government and kept interest rates near zero, defying basic financial tendencies when governments print money in Weimar Republic volume
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