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The central bank said measures introduced in June to curb mortgage borrowing would help make the housing market more sustainable, but it still showed concern.

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“Despite the lower forecast for household spending … the bank continues to expect further increases in the household debt-to-income ratio in coming quarters,” it said.

The debt-to-income ratio of Canadian households soared to an all-time high of 152% in the first quarter as ultra-low borrowing costs have lured more people into buying homes as prices in some cities rose sharply.

The central bank, which says the trend is the top domestic risk to the economy, said in its quarterly Monetary Policy Report that the pace of growth in household credit had slowed this year and consumer spending would likely be weaker than it had anticipated last quarter as global economic troubles bite into incomes and wealth.

But housing investment remains robust due to construction of multi-family buildings and home renovations, taking a toll on household finances.

“While growth in household spending has been moderate in recent quarters, it has been disproportionately supported by housing investment, which is around historical highs and showing signs of overbuilding,” the bank said.

The bank sees economic growth troughing in the second quarter at an annualized 1.8%, down from its 2.5% projection in April. It sees growth of 2.0% and 2.3% in the third and fourth quarters, respectively.

The 2012 revisions largely reflect weaker-than-expected government spending, business investment and consumer spending while the outlook for net exports improved slightly.

The bank sees inflation at 1.7% in the second quarter, 1.2% in the third and 1.6% in the fourth whereas previously it expected 2% inflation or higher in those periods.

With files from Bloomberg

© Thomson Reuters 2012