Growth of household spending is expected to slow according to the Bank of Canada

Consumption is expected to contribute meaningfully to growth in the near term, supported by ongoing strong job creation and elevated consumer confidence. However, in 2018–19, consumption growth is anticipated to moderate and the savings rate to increase in response to slower growth of household disposable income and higher interest rates. With higher interest rates, debt-service costs are expected to increase, thus dampening consumption growth, particularly of durable goods, which have been a significant driver of spending in recent quarters.

Elevated levels of household debt are likely to amplify the impact of higher interest rates on consumption, since increased debt-service costs are more likely to constrain some borrowers, forcing them to moderate their expenditures. An increased sensitivity of consumption to interest rates has been incorporated in the Bank’s projection model since October, but it is still too early to determine whether this behaviour is showing up in the data on consumer spending. If this greater sensitivity fails to materialize, consumption could be stronger than anticipated.

Growth of household credit has slowed somewhat since the first half of 2017, even though some households may have pulled forward borrowing in anticipation of the new B-20 guidelines related to mortgage underwriting from the Office of the Superintendent of Financial Institutions. This slowing is consistent with higher borrowing costs due to the two policy rate increases in 2017.

The contribution of housing activity to growth is expected to turn positive in the fourth quarter of 2017, mainly as a result of a rebound in resale activity in Toronto (see chart above). Some of the strength in Toronto resales at the end of 2017 may reflect a desire to book transactions in advance of the effective date of the B-20 guidelines. Residential investment is now expected to be roughly flat over the projection horizon. The rate of new household formation is anticipated to support a solid level of housing activity, particularly in the Greater Toronto Area, where the supply of new housing units has not kept pace with demand. However, interest rate increases, as well as macroprudential and other housing policy measures, are expected to weigh on growth in residential investment, since some prospective homebuyers may take on smaller mortgages or delay purchases.

Download the Full January 2018 Bank of Canada Monetary Policy Report.


The next scheduled date for announcing the overnight rate target is March 7, 2018. The next full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR on April 18, 2018.

About the Bank of Canada

What the Bank Does:

The Bank of Canada is the nation's central bank. Its principal role is "to promote the economic and financial welfare of Canada," as defined in the Bank of Canada Act. The Bank’s four main areas of responsibility are:

  • Monetary policy: The Bank influences the supply of money circulating in the economy, using its monetary policy framework to keep inflation low and stable.
  • Financial system: The Bank promotes safe, sound and efficient financial systems, within Canada and internationally, and conducts transactions in financial markets in support of these objectives.
  • Currency: The Bank designs, issues and distributes Canada’s bank notes.
  • Funds management: The Bank is the "fiscal agent" for the Government of Canada, managing its public debt programs and foreign exchange reserves.

Read more about how the Bank works through its core functions.

Who Runs the Bank:

The Governing Council
The Bank of Canada is led by the Governing Council, the policy-making body of the Bank, which is responsible for:

  • the conduct of monetary policy
  • promoting a safe and efficient financial system
  • charting the strategic direction of the Bank
  • The Governing Council is made up of the Governor, the Senior Deputy Governor and four Deputy Governors.

The Governing Council's main tool for implementing monetary policy is the target for the overnight rate (also known as the key policy rate). This rate is normally set on eight fixed announcement dates per year. The Council arrives at its decisions about the rate by consensus, rather than by individual votes, as is the case at some other central banks.

See who is on Governing Council and the Bank's Senior Management.

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Toronto Real Estate Board - IDX Last Updated: 9/20/2018 6:31:31 AM