Decision day – will the BoC cut despite PBO warning on debt?

Canada is waiting to see which of the analysts have called it right. Will the Bank of Canada decide that economic headwinds necessitate a cut in interest rates Wednesday? Or will governor Stephen Poloz hold back from a move which is likely to exacerbate rising household debt and further hit housing affordability? If the BoC does cut rates it would fly in the face of those concerned about the effect on the falling Canadian dollar; that includes exporters who, although benefit in the short-term, are worried about confidence in the economy and the reduced ability to invest in equipment, much of which is imported.

It would also be cutting interest rates the day after the Parliamentary Budget Office reported that household debt has reached 171 per cent of disposable income, the highest among the G7 nations. In its report the PBO warned that debt levels are set to increase further with low interest rates and house prices cites as two of the factors for the debt increase.

MBN

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