Canadians spent the last year racking up a record-high debt-to-income ratio that has the Bank of Canada more than a little concerned.
Statistics Canada data released earlier this month showed the amount of Canadians’ household debt compared with disposable income rose to 163.7 per cent in the third quarter of this year.
That means the average household held nearly $1.64 in debt for every dollar of disposable income.
Bank of Canada Governor Stephen Poloz says the rising household debt is a growing weak spot in Canada’s entire financial system.
Most of the exposure, he says, is concentrated among 720,000 households that could struggle to make debt payments in a significant economic downturn.
Still, many experts still believe the finances of most Canadians remain in decent shape.
The Canadian Imperial Bank of Commerce deputy chief economist, Benjamin Tal, says any negative fallout from the debt situation would likely depend on whether Canada sustains an unlikely economic shock.
Tal adds that trouble also hinges on how quickly interest rates eventually rise.
Experts say persistently low interest rates have been a major contributor to rising household debt and it became even easier to borrow in 2015 because the Bank of Canada twice dropped its benchmark rate in an effort to cushion the blow of falling oil prices.
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