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One of Governor Stephen Poloz’s predecessors says the Bank of Canada’s current approach to increasing interest rates is too cautious.

David Dodge, who led the Canadian central bank between 2001 and 2008, thinks Poloz should focus more on the long-neglected issue of financial stability and take the opportunity to raise rates now that the economy is running more or less at potential. Poloz kept his benchmark rate at 1 per cent last week and indicated he’s in no rush to tighten, given that he still sees signs of wage and inflation slack.

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Keeping borrowing costs low will only encourage households and businesses to keep adding debt, risks that should factor in more to the central bank’s decision making, Dodge said in a telephone interview.

“While I understand why they want to be cautious, and I think that’s quite correct, the fact that they are not moving to deal with what is a problem in financial markets arising from this very long period of very low interest rates I think is a mistake,” Dodge said.