But that easing would also disproportionately affect domestic sectors that are highly sensitive to interest rates like housing and other consumer durable goods, encouraging the buildup of financial vulnerabilities.
This has been the situation in Canada for the past seven years, as reflected in increasing levels of household indebtedness and elevated house prices – although, as I’ll discuss later, regulatory measures have been used to mitigate the resulting financial system risks (Chart 2). 3 What can monetary policy do?