Bank of Canada is engaged in a balancing act as it looks to prevent inflation from becoming entrenched while avoiding a recession. Read more
The session presented an opportunity for senators to get a better sense of the factors behind the Bank’s decisions. Independent senator Pierrette Ringuette asked Macklem about what models the central bank was using that would indicate it was approaching the highest possible rate before the country would teeter into a recession.
While Macklem pointed to the central bank’s forecasts, which are telegraphing that gross domestic product increased 1.5 per cent in the third quarter compared with a previous estimate of two per cent, he was not able to provide a number as he said the information changes constantly. “I’m not going to give you a number,” Macklem said. “I’m not going to give you a number because we take these decisions each time as we move forward with the best available information. And I’m not going to give you a number now because … we’re going to get more information before our next decision. It’s going to be a better-informed decision.”Article content
Both Macklem and senior deputy governor Carolyn Rogers pointed to the housing sector as the first to buckle under the weight of these outsized rate hikes. Rogers pointed to high household debt levels and a greater portion of income that would have to go to servicing this debt as a pressure point that would weigh on the economy.
“Certainly … as more of your income goes to your mortgage payment, it does weigh on the economy,” Rogers said. “But we’ve factored that into our forecast.”that Canadian households will soon have to allocate 15 per cent of their take-home pay just to debt servicing, with at least half of that estimate attributed to mortgage costs.Article content
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