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Canadian households are spending a record portion of their disposable income on debt payments, according to new figures from Statistics Canada.

The household debt-service ratio hit 14.9 per cent in the first quarter of 2019, edging a previous record set in the final quarter of 2007, in data going back to 1990. In dollar terms, Canadian households spent $202-billion on debt payments in the first quarter, with about $91-billion for servicing mortgage debt.

The record was “largely due” to interest-payment increases, National Bank senior economist Krishen Rangasamy said in a research note. Indeed, Canadian households spent more on interest than principal for the first time since 2013.

“Of course, this is not good news for consumption growth because there’s now a reduced share of disposable income left for spending on things other than debt servicing,” Mr. Rangasamy wrote. “On a positive note, however, [principal] repayments as a percentage of disposable income remain near all-time highs for both non-mortgage and mortgage debt. The latter is particularly encouraging with regards to stability of the housing market and hence financial system as a whole.”

Following years of ultra-loose policy, the Bank of Canada started to hike interest rates in 2017 and its benchmark rate is now at 1.75 per cent. However, given economic headwinds, markets now expect the BoC and its U.S. counterpart to start cutting again, perhaps as soon as this year.

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