Higher rates lurk ahead, Carney warns

"Cheap money is not a long-term growth strategy," Carney said at a Toronto luncheon. "Low rates today do not necessarily mean low rates tomorrow. Risk reversals when they happen can be fierce: the greater the complacency, the more brutal the reckoning."

The warning came as Statistics Canada reported that household debt levels hit another record high in the third quarter, with the debt to disposable income ratio hitting 148.1 per cent, as consumers took advantage of low borrowing costs.

Meanwhile, Carney said the central bank has "responsibility" to investigate the benefits of raising interest rates to ward off asset and debt bubbles that may emerge in an environment of historically low borrowing costs.

The remarks come days after the Bank of Canada released its latest review, in which it deemed the risk posed by record-high household debt to financial stability had increased. Furthermore, consumer debts are likely to deteriorate amid stagnant income growth.

Central bank policy is to set its benchmark policy rate in an effort to achieve and maintain two per cent inflation, and last week it opted to keep the rate unchanged at one per cent on weaker growth prospects. But Carney said there might be exceptions to the rule, especially given the events that led to the financial crisis in the fall of 2008.

"The question remains whether there will still be cases where, in order to best achieve long-run price stability, monetary policy should play a supporting role by taking pre-emptive actions against building financial imbalances," Carney told the Economic Club of Canada.

He added the central bank is looking at this issue as part of its research on whether to renew inflation targeting. "While the bar for further changes remains high, the bank has the responsibility to draw the appropriate lessons from the experience of others who, in an environment of price stability, reaped financial disaster."