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Tillsonburg News - - NEWS - – Peter Epp

end­ing rates in canada are ris­ing at a glacial pace, but the trend is sig­nif­i­cant enough that bor­row­ers are be­ing warned to be wary of their fi­nan­cial po­si­tion, and to be­gin re­duc­ing their debt if at all pos­si­ble.

We’re told that, on av­er­age, cana­di­ans owe $1.69 in credit mar­ket debt for ev­ery $1 of dis­pos­able in­come.

it’s a ra­tio that has some ex­perts wor­ried, es­pe­cially as in­ter­est rates con­tinue to climb.

last week, the bank of canada raised its bench­mark rate to 1.75 per cent.

the in­crease was by only a quar­ter of a per­cent­age point, and it was the fifth such in­crease since the sum­mer of 2017.

there will be fur­ther in­creases in the rate, ob­servers be­lieve.

the era of cheap bor­row­ing rates hasn’t ex­actly ended.

For at least a decade, cana­di­ans have en­joyed his­tor­i­cally low in­ter­est rates and have re­sponded by en­larg­ing their debt, mostly be­cause that debt was sus­tain­able.

the point at which higher in­ter­est rates be­gin to rep­re­sent a fi­nan­cial squeeze is some­thing ev­ery bor­rower must find out for him­self or her­self, but the cana­dian debt-to-in­come ra­tio sug­gests such a squeeze might come sooner than later.

Older cana­di­ans who re­mem­ber liv­ing through the late 1970s and early 1980s have seen this be­fore, although in­ter­est rates then were cat­a­stroph­i­cally higher and helped in­duce a deep re­ces­sion that threat­ened to de­stroy the econ­omy and shat­ter the lives of those who owed money.

it’s not likely we’ll ever see in­ter­est rates of 15 or 18 per cent, or per­haps even 10 per cent, soon.

but those who lived through that era 35 and 40 years ago in­tu­itively un­der­stand that debt can be­come a snarling mon­ster if left unchecked and un­tamed.

the only good news out of the bank of canada’s most re­cent in­crease is that it’s a re­sponse to a ro­bust econ­omy and an un­em­ploy­ment rate that’s at a 40-year low.

the coun­try is gen­er­ally en­joy­ing a level of pros­per­ity.

to be sure, some of that pros­per­ity has been bor­rowed against the hope of in­creas­ing in­comes and ris­ing home val­ues.

but the bank of canada rate hikes are a re­minder that in­ter­est rates are also prone to rise, es­pe­cially when they have nowhere to go but up.

it would be bet­ter to tame the mon­ster now, rather than later.

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