Canada’s housing market and high consumer indebtedness levels remain the top vulnerabilities for the financial system, but both have shown signs of easing, according to the Bank of Canada.
The central bank said in a report released Thursday that worries about the amount Canadians owe have begun to pull back, but because of the sheer size of the debt, it will remain a concern for some time.
“The two main vulnerabilities we have been watching closely are showing continued signs of easing, which is encouraging,” Bank of Canada governor Stephen Poloz said in a statement.
“Combined, the impact of higher interest rates and the changes to the mortgage guidelines have reduced credit growth and improved the quality of new lending.”
The assessment came in the Bank of Canada’s latest financial system review, which assesses key vulnerabilities that could amplify or propagate economic shocks.
Mortgage lending rules have been tightening in recent years with the application of stress tests on borrowers. New rules implemented at the start of this year introduced a test for borrowers who do not require mortgage insurance and had not previously been subject to stress testing. The housing market has been noticeably cooling since the beginning of this year.