The Canadian financial system remains resilient but the continuing adjustment to higher rates and possible shocks present key risks to stability, Bank of Canada Governor Tiff Macklem said on Thursday.
“Higher debt-servicing costs reduce financial flexibility for households and businesses and make them more vulnerable in the event of an economic downtown,” said the report. Before the report was released, money markets saw a roughly 60 per cent chance of a cut in June, while a reduction in July is fully priced in.
“Stretched asset valuations may not properly reflect risks to the economic outlook and therefore increase the likelihood of a disorderly price correction,” it said.
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