Canadian Household Debt-to-Disposable Income Ratio
Ratio of the amount households owe compared with the amount they earn net of taxes and deductions.
- In Q1 2020, Canadian households owed $1.75 for every $1.00 of disposable income earned, the same as in the preceding quarter.
- Bank of Canada’s overnight interest rate was lowered to an historic low of 0.25 per cent in March 2020, down from 1.75 per cent in the last quarter of 2019.
- Lower interest rates are unlikely to lead to higher household indebtedness due to heightened uncertainties associated with employment opportunities during the COVID-19 pandemic.
The Bank of Canada’s overnight interest rate was lowered from 1.75 per cent in Q4 2019 to 0.25 per cent in March 2020, signalling a lower interest rate environment which is typical in a recessionary environment.
Lower interest rates usually increase the inclination of consumers to want to increase borrowing.
However, due to COVID-19 business closures and associated loss of jobs, the desire to borrow more will likely be reduced.
The amount owed by Canadian households compared with the amount of disposable income earned (debt-to-disposable income ratio) remained unchanged at $1.75 in Q1 2020.
Despite the lower interest rate environment, uncertainties will likely continue in the short-to-medium term and contain the growth in the household debt-to-disposable income ratio.