Stephen Poloz said something last week that deserves more attention.
The Bank of Canada governor expressed confidence that regulatory changes were limiting home loans to those best able to finance them. It was the clearest statement yet that the central bank’s controversial decision to keep interest rates ultra-low won’t be altered over worries about a housing bubble or rising household debt levels.
Unlike their elected representatives in Ottawa—who continue to fetishize the economic virtue of balanced budgets—individual Canadians know what to do when presented with a once-in-a-lifetime opportunity to borrow money for virtually nothing. Household debt as a percentage of disposable income was was 163.3% in the first quarter, Statistics Canada reported last week—only marginally lower than the record 163.9% ratio the agency calculated for the fourth quarter.
These figures are the source of considerable stress for some. Poloz doesn’t appear to be one of them. He isn’t dismissive of the risk; the central bank ranks “household imbalances” among the things that trouble it most. Poloz also has ordered extensive study of the situation. Not so long ago, the central bank even appeared poised to raise interest rates due to concerns over financial stability.
Those concerns have either faded, or, more likely, been usurped by bigger ones. If debt is a problem, the easiest way to deflate it would be to raise interest rates. But for Poloz, that would be attacking a symptom of the post-crisis malaise, rather than the cause, which in his view is weak exports and business spending.