The tightened mortgage underwriting rules which came into effect at the start of the year have contributed to a slower start for the Canadian economy.
Bank of Canada governor Stephen Poloz told the House of Commons Standing Committee on Finance that two key issues led to slower-than-expected growth in the first quarter of 2018.
Firstly, the changes to the B20 mortgage rules and other policy measures which saw some homebuying transactions pulled forward into the last quarter of 2017. The slowdown this caused should “naturally reverse” Mr Poloz said.
Weaker experts were also an issue but again the governor expects this to reverse in due course.
The BoC is forecasting growth of 2% for 2018 and an above-potential rise in the years to come, while inflation is expected to remain elevated this year before easing to 2% in 2019.
On wages, Mr Poloz said that there are encouraging signs of growth over the past 18 months. However, he acknowledged that the 3% growth seen in the most recent data includes a temporary hike from new minimum wages in some provinces.
Household debt remains a concern.
Governor Poloz told the committee Monday that it will take more time to assess the impact of rising interest rates on household’s ability to service debts.
But he added that there are signs that borrowing is slowing as consumers adjust to higher rates and new mortgage rules.
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