Depend on feds to deal with housing, debt risks, says BoC

Risks stemming from rising household debt and housing market vulnerabilities will be better addressed by the government’s recent policy moves than by adjusting interest rates, said Bank of Canada Governor Stephen Poloz in a speech in Vancouver.

He added adjusting interest rates is a “very blunt tool” that has widespread affects on all areas of the economy, whereas fiscal measures can be aimed at specific financial vulnerabilities.

Read: What the BoC thinks of Morneau’s new housing measures

Poloz stressed, “We have now seen successive moves by federal authorities to mitigate the threat posed by imbalances in our housing market and high levels of household debt. […] Given all the work done to strengthen the global financial system over the past few years, it makes even more sense to separate monetary policy from efforts to stabilize the financial system,” even though monetary policy can be used to address financial stability issues.

Last week, the central bank and the federal government renewed their inflation-targeting framework agreement. The Bank of Canada uses its the inflation target when determining monetary policy and setting its key overnight interest rate.

In its new agreement with the government, the target was kept at 2%, the midpoint of a range of 1% to 3% that the central bank deems acceptable.

However, the Bank says it will change the way it measures core inflation, which it uses to help focus on the underlying trend in inflation. It will use three different ways to measure instead of a single method of assessing core inflation. Read more.

Also read: How the target inflation rate affects your life

Staff, with files from The Canadian Press

The Canadian Press is a national news agency headquartered in Toronto and founded in 1917.