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For sale signs in front of homes in Calgary.

TODD KOROL/The Globe and Mail

Oil prices may be crashing and sparking fears of an economic downturn, but Canadian households continue to have few qualms about piling on debt, according to a new analysis by Royal Bank of Canada.

Household credit grew by an annualized rate of 4.5 per cent in November, a two-year high and the second month of strong gains, to top $1.8-trillion, writes RBC economist Laura Cooper. Residential mortgage debt led the way, jumping 5.2 per cent in November from the same month a year before. Other forms of consumer credit, such as credit cards, lines of credit and loans, grew by 3 per cent.

But even as oil prices fell to a six-year low this week, that won't be enough to seriously derail the Canadian economy, Ms. Cooper wrote. Along with a boost in exports thanks to the lower Canadian dollar, cheaper gas at the pumps will put more money in the pockets of consumers, whose continued spending will more than offset the economic hit from lower oil prices, RBC predicts. A 30-per-cent drop in crude oil prices translates into an 18-per-cent decrease in prices at the pumps, which would put an extra $8.9-billion in the pockets of Canadian consumers, Ms. Cooper said in an e-mail.

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"We are of the view that the rise in exports and consumer spending have the capacity to more than offset the negative impact of declining business investment resulting from the low-oil-price environment," she added. RBC is predicting that the Bank of Canada will raise interest rates in the third quarter of the year.

That analysis stands in contrast to remarks by the central bank's deputy governor, Timothy Lane, who told an audience in Madison, Wis., Tuesday that any economic boost from cheaper gas and a lower Canadian dollar will be "more than reversed over time."

In a report earlier this month, Fidelity Investment portfolio manager David Wolf, a former Bank of Canada adviser, predicted the likelihood that lower commodity prices may eventually force the Bank of Canada to slash interest rates down to zero had risen "substantially" – although he says the central bank may not do so in the short term for fear of fanning the flames of household debt, which hit 162.6 per cent of income in December, according to Statistics Canada.

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