Bank of Canada Governor Mark Carney, who has held the benchmark interest rate at an ultra-low 1 percent for a record 16 months, made clear in a news conference on Wednesday that he would not raise rates solely to slow the hot housing market. He said monetary policy was not the first line of defense in dealing with a household debt to disposable income ratio that reached a record 153 percent last year. Pointing to past government measures to toughen mortgage rules, he said there is no predetermined tipping point for taking action. "We're looking very closely at this issue. We're cooperating with other agencies. There are a range of policy tools that are available that have been used in the past," he said. "Some of them have lags and we continue to evaluate with our partners the situation to determine the appropriate path of all policies. So there's no magic number here." In its quarterly Monetary Policy Report, the bank did say its economic projections assumed gradual interest rate increases through 2013. But this was not a forecast and Carney said there were no plans to copy the US Federal Reserve in providing more guidance on the future path of interest rates. The bank has held its target for the overnight rate steady since September 2010. Most economists expect the next move to be up, but not until 2013. Markets, on the other hand, are pricing in a rate cut. The bank's overall two-year outlook for the Canadian economy was broadly similar to the previous one in October, with the European situation dampening growth but domestic spending sustaining a modest expansion with some extra help from a more upbeat view on US growth. It sees slightly weaker quarterly growth throughout 2012, although growth should pick up in 2013. "January's Monetary Policy Report largely underscores our view that the Bank of Canada will remain on hold through 2012," said Diana Petramala, economist at TD Economics. "Most importantly, the central bank is unlikely to want to raise rates in an environment where global financial conditions are worsening," she said in a note to clients. PARTS OF HOUSING MARKET OVERVALUED In the absence of robust demand for Canadian exports from the rest of the world, consumers and businesses will be the main drivers of growth over the next two years, the bank predicted, with fiscal stimulus receding. But top of mind for Canadian investors is whether the household debt will rise so much that it harms the economy rather than helping it because it could lead to a sudden drop in spending or lead to a collapse in the housing market, with noxious effects on the rest of the economy. Carney said his biggest concern was "extreme levels of debt for those who are most vulnerable," suggesting that lower-income Canadians could default on loans if housing prices fall. "In an environment where the housing market has been quite robust for a period of time and is in some cases quite firmly valued, in other cases potentially overvalued, there should be some caution in our view on bringing on additional debt," he said. Corporations will also be big drivers of growth although the pace of business investment is moderating somewhat, Carney said. Corporate balance sheets are "in their best shape in living memory," he said, but many businesses are waiting out the European crisis before committing to new projects. The central bank said the European debt crisis should shave 0.6 percent off Canada's economy this year. It assumes Europe will be able to contain its debt crisis, but expects the impact on global financial conditions to widen over the next two years, increasing funding pressures on banks, lowering confidence and making credit less available. With net exports restrained, the current account deficit will likely remain significant, at about 3 percent of gross domestic product.