The Bank of Canada took a good look at the Canadian economy, saw it was sinking into the mire, glanced at the collapsed prices of commodities, particularly oil, saw how they were wreaking havoc in Canada, and then looked at the global economy, particularly at China and the U.S., and freaked out with the realization (acknowledgement) that things are heading south FAST.
It cut its overnight rate 25 basis points to 0.5%, the second rate cut this year, and attached a gloomy view about the Canadian economy with, as it said, a “significant downgrade” from its last estimate issued only in April.
Canada is in a majestic housing bubble but rather than trying to tamp down on it, the Bank of Canada is going to feed it with even cheaper money, while openly fretting about it. Governor Poloz warned that the rate cut comes at the price of “financial stability risks” which “remain elevated,” and that, “of particular note, are the vulnerabilities associated with household debt and rising housing prices.”
- Household indebtedness, driven by ballooning mortgages, has soared over the years.
- household-debt-to-disposable-income ratio now hovers at 163.3%.
- Home prices, funded by this boom in debt, have also soared.
- prices now exceed the peak of the prior housing bubble by 27% on average across major metro areas, and in Toronto by 45%.
HERE (as well as those above and below) are more edited excerpts of what Poloz had to say as conveyed by Wolf Richter (wolfstreet.com) in an article* originally entitled Bank of Canada Sees Global Economy, Freaks Out, Cuts Rate, Warns of Financial Stability Risks, Loonie Plunges.
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