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The acceleration of debt growth at the household level in August came on the heels of the Bank of Canada’s decision in mid-July to cut its key interest rate to 0.5 per cent from 0.75 per cent in an effort to stimulate a struggling Canadian economy that contracted in the first half of the year.

Angelo Arcadi/Getty Images/iStockphoto

Canada's household debt levels rose at their fastest year-over-year pace in nearly three years in August, as Canadians continued to pile into residential mortgages in the wake of the Bank of Canada's second interest-rate cut in six months.

The central bank released new data showing that total Canadian outstanding household credit rose to $1.869-trillion in August, up an annualized pace of 5.9 per cent from July. Compared with a year earlier, household debts were up 5 per cent, the highest year-over-year increase since October, 2012.

Over the past three months – a time period the bank uses to indicate the recent credit trend – household credit rose at a 5.6-per-cent annualized pace, the fastest since March, 2012.

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The acceleration of debt growth at the household level in August came on the heels of the Bank of Canada's decision in mid-July to cut its key interest rate to 0.5 per cent from 0.75 per cent in an effort to stimulate a struggling Canadian economy that contracted in the first half of the year. The cut, coming on top of a similar quarter-percentage-point cut in January, dampened borrowing costs and provided a renewed green light for home buyers in Canada's long-overstretched housing market.

Residential mortgage debt jumped 7.5 per cent annualized in the month, raising the three-month pace to 7 per cent, its fastest since April, 2012. On a year-over-year basis, mortgage growth was 5.9 per cent, a 32-month high.

But consumer credit – which includes credit cards, car loans, personal lines of credit and other personal loans – grew at a much tamer 2 per cent annualized in August, continuing its recent slowing trend. The three-month annualized pace of 2.3 per cent matches the lowest since the beginning of 2014, and the 12-month increase of 2.9 per cent matched an 11-month low.

"The residential mortgage boom is continuing to be the driver of the overall credit trend," said Royal Bank of Canada economist Laura Cooper.

She said the moderate gains in consumer credit reflect a healthy pace of consumer spending, the brisk pace of mortgage lending is evidence that Canada's overall housing demand remains buoyant.

"The [Bank of Canada's] 25-basis-point cut is not having a huge impact," she said, noting that mortgage rates were already near historic lows before the central bank trimmed its key rate. "But at the same time, it is abetting it," she said, by cooling any upward pressure on mortgage rates.

The Bank of Canada also reported that total business credit rose at a slim 2.4-per-cent annualized pace in August, to $1.728-billion, a sign that the month's financial-market volatility and global economic stumbles may have put a chill on business loan demand. Year-over-year business debt is up a much brisker 7.7 per cent, but the trend has been slowing amid uncertainties about the Canadian and global economies. The three-month growth rate sat at 4.4 per cent annualized, the slowest in more than two years.

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