Bank of Canada officials are giving a thumbs-up to the Trudeau government's efforts to cool the country's debt-fuelled housing market.
"Over time, the measures announced by the federal government … will help mitigate risks to the financial system posed by household imbalances," senior deputy governor Carolyn Wilkins said Thursday in Trois-Rivières, Que.
But Ms. Wilkins appeared to play down suggestions from some economists that a federal mortgage insurance crackdown gives the central bank flexibility to cut interest rates again if the economy falters.
Ms. Wilkins says the central bank is being careful not to exacerbate the problem of Canadians loading up on too much debt to buy houses. "We are mindful that low interest rates can lead to a buildup in financial vulnerabilities," Ms. Wilkins pointed out.
On Monday, Finance Minister Bill Morneau announced several measures to restrict access to mortgage insurance and crack down on speculators, including foreigners, who flip houses without paying capital gains. He also launched talks with the country's big banks and other lenders to get them to share more of the risk of taxpayer-backed mortgage insurance.
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Speaking at the Université du Québec à Trois-Rivières, Ms. Wilkins added the bank is continuing to monitor high household-debt levels and the housing market "very closely."
Like most economists, Toronto-Dominion Bank economist Brian DePratto doesn't expect a rate cut at the central bank's next scheduled rate-setting announcement on Oct. 19. But in a research note, he said Ms. Wilkins's cautious economic outlook "could be pointed to down the road as an 'I-told-you-so' should the banks decide to cut rates."
The Bank of Canada has held its benchmark rate steady at 0.5 per cent following two cuts in 2015, designed to deal with the fallout of the oil price collapse.
In her speech, Ms. Wilkins acknowledged that the Canadian economy's climb back from the recession and the oil price shock has been uneven, and that "material slack" remains.
"The adjustments are clearly under way," she said. "There has been progress, but also a few setbacks."
Ms. Wilkins pointed to weaker-than-expected U.S. growth and lingering "uncertainty" about the strength of investment in Canada's key export market.
The central bank, which is due to release its next closely-watched quarterly forecast in two weeks, is already warning that it will downgrade its outlook. In September, the bank said its inflation outlook had "tilted somewhat to the downside."
The bank's current forecast calls for GDP growth of 1.3 per cent this year, 2.2 per cent in 2017 and 2.1 per cent in 2018.
On the positive side, Ms. Wilkins said the energy sector is showing tentative signs of bottoming out, after a massive plunge in investment, particularly in the oil sands.
"When we talk to company leaders, they tell us that the pace of the investment cuts may be easing," she remarked. "And while it appears that oil rig activity has troughed, it is too early to say that the cuts to investment are behind us."
Investment in the energy sector has tumbled 60 per cent since 2014, and tens of thousands of jobs have been lost.
Ms. Wilkins also expressed concern about the lack of business investment outside the oil patch. "The lethargy in business investment is broad-based and started before the oil price shock," she said, noting the spending on research and development has been declining for the past four years.
Ms. Wilkins said the bank is also watching closely for a "sustained pickup in non-commodity exports and sustained growth in the rest of the economy." She also highlighted the bank's longer-term concern about the aging profile of the work force and declining productivity growth.