Bank of Canada Governor Stephen Poloz says a lot of things need to come together before the bank is confident it's time for another interest rate increase, including a better understanding of the impact of recent rate hikes on the country's historic level of debt.

In an exclusive broadcast interview with CBC Radio's The House, Poloz said the bank is taking a cautious approach to interest rates and is treading lightly when it comes to debt Canadians are taking on.

"It's the one thing I would say we're the most cautious about," Poloz told host Chris Hall during an interview Wednesday in a boardroom at the recently renovated Bank of Canada headquarters kitty-corner from Parliament Hill.

While the economy is doing well, the "debtors club" is growing, he said, mostly from first-time home buyers taking on hefty mortgages because of hot housing markets.

Increasing interest rates could have a big impact on people's ability to spend if they already have a lot of debt.

"Because of all that debt, we aren't as sure as we normally would be what would be the response of the economy to a higher rate of interest," he said.

The bank hiked its rate twice this year — once in July and again last month — after staying on the sidelines for the previous two years. Earlier this week, it chose to leave its benchmark interest rate steady at one per cent, prompting questions as to when the next increase might come.

Poloz said that will happen, but not yet.

"As the economy continues to evolve as it has been, it will be the case that it will need less monetary stimulus in the future," he told The House.

"There are a lot of things that have to come together before we feel confident that we're all the way there."

Youth unemployment

Sitting in the bank's boardroom adorned with portraits of previous bank governors — a room he said he likes to use to think about what his predecessors would do — Poloz confessed that despite Canada's positive economic landscape, he's concerned about the data he's seeing regarding youth unemployment.

There a lot of people, youth in particular, who are discouraged about the current labour market, he said. They're working part time when they would rather work full time, or they've dropped out of the labour market entirely.

Bank of Canada Governor Stephen Poloz

Poloz sat down with CBC Radio's Chris Hall at the Bank of Canada headquarters in Ottawa on Wednesday. Poloz said high levels of household debt make it more difficult to judge the economic impact of future interest rate hikes. (Bank of Canada)

"The economy is just getting to the spot where I'm hopeful we're going to begin absorbing those folks who've become discouraged over this [economic] cycle," Poloz said.

It's an issue he's been talking about for years, but he said things haven't gotten much better.

"I won't be content with this business cycle until we've accomplished that," he said. "And that's still got some work for us to do."

Impact of NAFTA negotiations

Along with releasing its rate decision on Wednesday, the bank also issued a Monetary Policy Report, which provides a deeper look at the Bank of Canada's projections for inflation and growth in the Canadian economy.

The bank said it expects inflation to rise to two per cent by the end of next year.

The report also said the bank expects Canada's economy to expand in the coming years, but predicted a slightly lower outlook that previously predicted for 2019. A main reason for that is risk surrounding NAFTA, given the current highly charged trade talks between Canada, the United States and Mexico.

"I don't want to stick our nose in the delicate process of negotiating," Poloz told The House.

"We're just thinking of it as a risk to the economic outlook. It's one that companies talk to us about.

"We believe that investment in Canada today is lower than it otherwise would be without that uncertainty about the outlook for NAFTA."