OTTAWA, June 11 The Organization for Economic
Co-operation and Development endorsed the Bank of Canada's
accommodative monetary policy on Wednesday but recommended that
Canadian authorities tighten mortgage insurance further to
promote financial stability.
The OECD's survey of Canada found that economic growth "has
been fairly solid and in any case higher than in most other OECD
countries since the trough of the recession." It noted the
"highly accommodative" monetary policy at the central bank.
"Given the current low underlying inflation rate,
uncertainty surrounding the amount of economic slack and signs
of housing-market stabilization, the bank should maintain its
supportive policy stance for the time being," it said, adding
that accommodation would need to be withdrawn as slack
diminishes and inflation pressures rise.
The Bank of Canada has kept its policy rate at 1 percent
since September 2010.
While high house prices and household debt create concerns,
the OECD said the probability of a major broad-based correction
"The quality of mortgage loans remains high, and recent
macro-prudential tightening has moderated household borrowing,"
Nonetheless, it recommended that mortgage insurance be
tightened to cover only part of lenders' losses in the case of a
default by the borrower.
"Imposing a deductible on mortgage insurance, as is common
in other lines of insurance, would help promote stability by
better aligning the interests of the lenders and those of the
insurer, thereby reducing moral hazard," the report said.
It also recommended that the dominance of the government's
Canada Mortgage and Housing Corp in insurance could be reduced
by progressively lowering the amount of insurance it can write
and raising that of the private providers.
(Reporting by Randall Palmer; Editing by Dan Grebler)