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Canadian Household Debt-to-Disposable Income Ratio

Ratio of the amount households owe compared with the amount they earn net of taxes and deductions.

Key Highlights

  • In the last quarter of 2019, Canadian households owed $1.76 for every $1.00 of disposable income earned.
  • In response to the outbreak of COVID-19, Bank of Canada lowered overnight interest rate from 1.75 per cent in the last quarter of 2019 to an historic low of 0.25 per cent in the first quarter of 2020.

Like the recession of 2008, Bank of Canada lowered overnight interest rate to 0.25 per cent in March 2020 in response to the onset of the COVID-19 pandemic.

Rates have fluctuated around historically low levels since 2008.

Household Debt-to-Disposable Income Ratio

Lower interest rates lead to reduced borrowing costs and an increase in borrowing.

Canadian households have increased borrowing following the lowering of interest rates which started in 2008.

The amount owed compared with the amount earned (debt-to-disposable income ratio) by Canadian households has increased since then.

In Q4 2019, Canadians owed $1.76 for every $1.00 of disposable income earned.

With the lowering of interest rates back to a historic low of 0.25 per cent in the first quarter of 2020, households may be inclined to borrow more.

The extent to which households increase borrowing will likely be constrained by COVID-19 induced job losses and/or other challenges.