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OTTAWA (Reuters) - Bank of Canada Governor Mark Carney repeated on Tuesday that the central bank might have to increase interest rates and he continued to fret about the high levels of debt that Canadians are taking on.
Carney used an appearance at the House of Commons finance committee to stress the central bank's recent message that rates could have to go up despite global economic uncertainty.
"We have noted that given the state of the (Canadian) economy, the amount of slack, firmer underlying inflation, that it may become appropriate to withdraw some of the considerable monetary policy stimulus," Carney told the committee.
"But any such decision would be taken with care and careful consideration of domestic and global risks. There's a few clear messages there."
The central bank, which has kept rates at a near-record low of 1 percent since September 2010, surprised markets last week when it explicitly mentioned that a rate increase might be needed because of a stronger economy and underlying inflationary pressures.
The cheap money has encouraged Canadians to borrow more heavily, particularly against the equity in their homes, prompting repeated alerts from the bank about possible calamitous consequences once rates start to rise.
Carney - who says Canadians cannot keep borrowing so heavily against the value of their homes - said financial authorities were looking closely at levels of household debt and ways to contain the problem. He also made it clear that too tight a clampdown could hurt economic growth.
"There's always more that could potentially be done. But these measures, there has to be an element of prudence in balancing the pace of slowing of this phenomena with the underlying growth of the economy," he said.
Carney also noted that Canadians appeared to be listening to repeated warnings not to take on too much debt and to prepare for higher rates.
"What we've also seen in recent months is that the proportion of variable rate debt on new debt that's being taken on - new mortgages being taken on - has gone down quite substantially," he said.
Some analysts fear that booming property prices in some big cities could presage a housing bubble, and Carney said there was reason to be wary about the value of condominiums in some metropolitan areas such as Toronto.
"There are some cases where valuations are firm, shall we say, and that there's probably more downside risks than upside risks to the future evolution of prices so that's an environment that warrants caution," Carney said.
The Bank of Canada last week increased its growth forecasts for the first three quarters of this year, testament in part to how domestic firms are dealing with weak markets and a strong Canadian dollar.
Carney repeated that firms needed to export more to emerging nations, which are growing much faster than traditional trading partners such as the United States and the European Union.
In time, he said, the currencies of big emerging nations would most likely rise against the U.S. and Canadian dollars.
"That's another reason why our businesses must find markets in the emerging countries, because they'll have another (source of) revenue, revenue from the appreciation of their currencies against ours," he said.
With additional reporting by Louise Egan and Randall Palmer in Ottawa and Jennifer Kwan, Jon Cook and Claire Sibonney in Toronto; Editing by Jeffrey Hodgson and Peter Galloway