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Bank of Canada warns of excess business, household debt from COVID-19

Last Updated May 14, 2020 at 9:09 am MDT

The Bank of Canada building is seen in Ottawa, Wednesday, April 15, 2020. If you must launder your money, do it carefully, advises the Bank of Canada. THE CANADIAN PRESS/Adrian Wyld

OTTAWA — The Bank of Canada says there are signs in the country’s financial markets that suggest concern about the ability of companies to weather the COVID-19 economic crisis.

The central bank has spent the last two months making a flurry of policy decisions that has seen it slash its target interest rate and embark on an unprecedented bond-buying program to ease the flow of credit.

The report suggests these measures have helped ease liquidity strains and provide easy access to short-term credit for companies and households.

But it is warning this morning that a cash-flow problem for businesses seeing sharp revenue declines during the crisis could soon develop into a solvency issue.

The Bank of Canada’s review of the country’s financial system says market prices point to a concern that defaults are likely to rise.

The report also raises concerns that household debt levels are likely to rise and become acute for households whose incomes don’t fully recover from the pandemic.

This report by The Canadian Press was first published May 14, 2020.

The Canadian Press