February 8, 2018 / 8:49 PM / 10 months ago

INTERVIEW-Bank of Canada eyes overall economy, even as debt, NAFTA weigh - Wilkins

(Adds Wilkins comments)

By Andrea Hopkins

MONTEBELLO, Quebec, Feb 8 (Reuters) - Canada’s high household debt is the biggest vulnerability facing the economy and uncertainty about NAFTA is weighing on the outlook, but the Bank of Canada is factoring in the economy’s overall performance as it makes its next rate decision, Senior Deputy Governor Carolyn Wilkins said on Thursday.

While some households will find it extremely difficult to cope with higher debt service costs, the central bank expects both the economy and consumption to continue to grow, Wilkins said in an interview with Reuters.

“Every household is going to find it more or less difficult, so some households might find it extremely difficult, others will just need to tighten their belt a bit, but overall as you can see from our projection, we expect the economy to continue to grow, we expect consumption to continue to grow.”

Asked whether the recent stock market selloff would affect the bank’s path to higher interest rates, Wilkins said asset prices feed through the transmission mechanism and forecasts but only matter if moves are large and in one direction.

The more important context is that the stock market volatility is happening in an environment of growth and rising bond yields, Wilkins said.

While policymakers do pay attention to how the markets are pricing in odds for future rate hikes because it gives policymakers insight into what markets expect the bank to do, it is not a source of concern, she said.

“We find that information very valuable and we also look at it just to see what they expect us to do ... but what markets are expecting or not expecting is rarely a source of concern. Our biggest concern is taking the right decisions to achieve our inflation target,” Wilkins said. (Reporting by Andrea Hopkins Editing by Chizu Nomiyama)

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