If the monthly mortgage or car payment – or both – leave little left over for other things, don’t blame Canada’s central bank for your financial predicament.
Stephen Poloz, the governor of the Bank of Canada, said over the weekend Canadian borrowers “bear the ultimate responsibility for their own decisions,” in a speech made abroad.
As part of its mandate to keep the financial system and economy stable, the Bank of Canada sets its key, overnight lending rate it provides private lenders such as big banks, who in turn use the key rate to determine the interest rates they charge customers.
The central bank has dropped rates to record low levels in recent years to help the economy recover from the Great Recession, but in so doing has fueled bulging debt levels among consumers.
By the bank’s own estimate as many as 1.5 million households have taken on risky levels of debt, something that could destabilize the economy if things go south (like employment levels, for example).
Poloz made the speech following meetings in Lima, Peru with the IMF and World Bank.
He acknowledged that rising debt levels among Canadians represented a “key” risk to our financial system and economy, noting increased borrowing has been a “rational response” to low rates.
But the country’s top central banker said many consumers need to “better understand the important decisions they make,” adding that the Bank and other financial experts need to improve financial literacy.
Still, Poloz said those who have raced to take on excessive levels of debt shouldn’t blame central bankers.
“It is not the role of monetary policy to protect individuals from making bad choices,” he said.
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