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OTTAWA, Sept 11 (Reuters) - Canadian household debt compared
to income rose to a record in the second quarter, highlighting
one of the key vulnerabilities to the financial system the Bank
of Canada is watching.
In the wake of low oil prices, the bank said earlier this
year the biggest domestic risk is that jobs and income decline
enough to reduce Canadians' ability to pay their debt, leading
to a housing correction.
Since then, the central bank cut interest rates for the
second time this year, raising concerns Canadians might take on
more debt than they can handle.
There has also been concern Canadians might be in over their
heads if cheaper oil leads to widespread layoffs, but so far the
broad labor market has been resilient.
"At this stage, there's always the risk of seeing a somewhat
higher share of delays of payment in (Alberta) in the next 18
months because of the lag effect of the oil shock," said
Sebastien Lavoie, assistant chief economist at Laurentian in
Montreal.
"Right now, we're in a good position in the sense that we
haven't seen any distress from Canadian households overall,
despite the oil shock."
The leverage ratio rose to 164.6 percent in the second
quarter from 163.0 percent in the first quarter, Statistics
Canada said on Friday. The ratio is not seasonally adjusted.
Economists warned the Bank of Canada will need to use
caution when it eventually raises interest rates, though that is
expected to be a long way off. The latest debt data was unlikely
to alter the path of monetary policy. CA/POLL
The increase in the leverage ratio in the second quarter
came as disposable income increased at a slower pace than
household credit market debt, which includes consumer credit,
mortgages and non-mortgage loans.
Even accounting for seasonal factors, the debt-to-income
ratio rose 0.9 percentage points, "which will do little to quell
policymakers' concerns about the degree of leverage in the
Canadian household sector," Laura Cooper, economist at RBC,
wrote in a note.
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Graphic - Canada economic dashboard:
http://graphics.thomsonreuters.com/15/sc-canada/index.html
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On a seasonally adjusted basis, households borrowed C$26.3
billion ($19.85 billion) in the second quarter, an increase of
C$3.7 billion from the previous quarter. Mortgages accounted for
the largest portion of that at C$17.7 billion.
But the interest-only debt service ratio remained at
historic lows at 6.3 percent, suggesting households are able to
manage their debt for now.
($1 = $1.3247 Canadian)