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A credit card is used at a Calgary shop.Todd Korol/The Globe and Mail

The Bank of Canada is stepping up its warning to Canadians about the dangers of record household debt amid expectations that interest rates could stay very low for some time.

The central bank is keeping a wary eye on record borrowing – much of it concentrated in the hands of a relatively small group of younger heavily indebted borrowers in Ontario, British Columbia and Alberta – deputy governor Lawrence Schembri said Wednesday.

"The bank is concerned about high household debt and will continue to monitor it closely," Mr. Schembri said in a speech to the Guelph Chamber of Commerce.

But Mr. Schembri insisted the country's financial system, including the Big Six banks that hold 70 per cent of outstanding mortgages, is "very resilient" and can withstand anything the economy throws its way, including a severe recession.

And he said the bank has no plans to use monetary policy as a way to stifle Canadians' appetite for debt. Raising rates, he said, is "a very blunt instrument" that could derail the economy.

"We believe that there are other measures, including public policies and private remedial actions, better suited to targeting and reducing these vulnerabilities than monetary policy, which affects the entire economy," he said.

In particular, Mr. Schembri said the bank has been warning borrowers and lenders to "exercise appropriate caution."

"In particular, borrowers and lenders should take into account the impact of higher borrowing rates in the future on the cost of servicing mortgages and other loans," he explained.

The central bank has cut its key overnight lending rate twice since the start of 2015 to deal with the fallout from the commodities price collapse. The rate now stands at 0.5 per cent, and some economists believe the bank could cut again this year if the economy does not pick up.

Toronto-Dominion Bank economist Brian DePratto said household debts "remain front of mind for the Bank of Canada."

The bank's reluctance to do anything about it means the overnight rate could remain unchanged until some time in 2018, Mr. DePratto said in a research note.

The central bank says the biggest threat to Canada's financial system would be a severe recession that leads to a spike in unemployment and causes many homeowners to default on their mortgages. If that happens, Mr. Schembri said, the share of borrowers behind on loan payments would more than quadruple to 1.8 per cent from 0.4 per cent now.

Mr. Schembri also pointed out that excessive borrowing has become increasingly concentrated in a clutch of households with extremely high debt-to-income ratios. As the Bank of Canada pointed out in its most recent Financial System Review, there are roughly 720,000 Canadian households with debts equal to more than 3 1/2 times what they earn every year. They hold about a fifth of all household debt, or $400-billion.

The share of these highly indebted households has jumped to 8 per cent from 4 per cent before the financial crisis.

The bank said these borrowers are at the greatest risk of defaulting on their loans because they tend to be younger, earn less money and live in the provinces where house prices have climbed the most in recent years: Ontario, B.C. and Alberta.