It's not the Bank of Canada's job to fix bad decisions consumers make with regard to debt loads in the current low rate environment, Stephen Poloz says.

In his last scheduled public appearance ahead of Monday's election and the central bank's latest interest rate decision on Wednesday, Canada's top central banker told a Washington, D.C., banking audience on Monday that the bank's main job is to fight inflation — not clean up any messes in the consumer debt market.

Poloz said the central bank is the last line of defence against "bad decisions" in consumer debt, behind lenders and borrowers themselves and various regulatory bodies. But the bank is keenly aware of the impact its policies can have on the so-called "real economy" and strives to find the best way of achieving its monetary policy objectives without contributing to imbalances elsewhere.

The central bank has come under fire in recent years for repeatedly warning Canadians about the dangers of taking on debt once rates inevitably increase, but then failing to actually move rates higher.

Inflation targeting

That seeming dichotomy comes about because the bank's actual mandate is to keep inflation within a comfortable range of between one and three per cent. But the bank doesn't have the specific tools to make lending easier for some, but not others.

All else being equal, the bank cuts rates when it wants to encourage businesses to borrow to invest and expand the economy. The bank hikes rates when the economy is getting too hot, and the bank wants to discourage that type of activity. The impact of the bank's rates on consumer lending and borrowing is in many ways a byproduct of that — but not a primary goal.

"Since we are an inflation-targeting central bank, our policy tool must always be directed first at our inflation target," was how Poloz summed it up.

That poses a problem when the cheaper lending tailored to the business community spills over into other parts of the economy, such as the housing market, where it sometimes encourages recklessness.

There's evidence that's happening, as housing prices set new record highs with each passing month, especially in large, hot markets in Toronto and Vancouver. But if buyers are buying more than they can swallow thanks to cheap rates that make monster mortgages look temporarily manageable, that's not the central bank's fault, Poloz said.

"It is not the role of monetary policy to protect individuals from making bad choices," he said, adding that borrowers and lenders themselves are "the first line of defence" against those sorts of risks to the financial system.

But Poloz acknowledged the bank keeps a close eye on debt loads and tries to do a better job of gauging how monetary policy can have unwanted effects in the real economy.

"I'm not trying to diminish the threat posed by elevated household debt. We are continuing to watch this closely," Poloz said. "The point is that there is more to the story than the debt-to-income ratio," which rose recently to a record 165 per cent, Statistics Canada said last month.

Poloz noted that while the debt-to-income ratio has risen to 165 per cent, another closely watched metric known as the debt-service-to-income ratio is near where it was seven years ago, in 2008. Put simply, the service ratio measures not overall debt loads but our ability to pay back our debts, and a ratio that has remained steady for seven years is a sign that consumers acted rationally in the face of cheap lending — they borrowed more.

But getting Canadians to borrow more wasn't the bank's intention.

Indeed, Poloz's main message in the speech was that the bank is trying to do a better job of balancing all the needs of Canada's complex economy, from macroeconomic to microeconomic.

The bank is currently mandated to target inflation, but the five-year term of that mandate is set to expire next year. If politicians want to redefine the bank's role in the economy, Poloz's speech made it sound like Canada's top central banker is open to it.

"The idea that central bankers should pay little heed to financial stability issues and simply 'stick to our knitting' of inflation control — a position once advocated by many — seems quaintly naive," Poloz said.