OTTAWA Aug 8 (Reuters) - Bank of Canada Governor Mark Carney indicated on Wednesday that the red-hot Canadian housing market is starting to cool, but said vigilant policy makers, including the central bank, stood ready to take further action if needed.
The booming real estate market and the related problem of soaring household debt have become the biggest domestic risk for the Canadian economy and a headache for the central bank, whose rock-bottom interest rates have contributed to heavy borrowing.
"I think an adjustment is beginning in the Canadian housing market," Carney said in an interview on Wednesday with CTV television in London.
Still, the federal government, the central bank and the banking regulator are watching the situation very closely, he said.
"If additional steps are required, including by the bank, we will take them."
Carney, who has indicated he wants to raise interest rates but hasn't said when, attributed the improvement to repeated warnings to both banks and borrowers from himself and Finance Minister Jim Flaherty, who also tightened mortgage rules in June for the fourth time since 2008 to curb borrowing.
The banking regulator, the Office of the Superintendent of Financial Institutions, also helped by encouraging banks to increase their capital more quickly, he said.
Carney still sees the household debt to income ratio rising further in the next few quarters, but noted some progress.
He suggested the Canadian dollar, which strengthened to parity with the U.S. dollar on Friday for the first time since May, partly reflected strong economic fundamentals but was also a result of foreign investors parking their money in a country seen as relatively safe from global financial turmoil.
"There's also an element of safe-haven premium for the Canadian dollar. There are relatively few places in the advanced world that investors can put their money with a degree of certainty that something catastrophic is not going to happen," he said.
Canada should use the inflow of capital to invest in expanding the economy, not to build more houses, he said.