The Bank of Canada hinted a "modest" increase in interest rates

The central bank, in its latest monetary policy report, said the timing and degree of any increase "will be weighed carefully against domestic and global economic developments."

In a special section within the report, the bank estimated that Canadians are borrowing on rising home values to an unsustainable degree. Home equity lines of credit and mortgage refinancing has grown from about $8 billion in 2001 to $64 billion in 2010, with about half of that "equity extraction" going into consumption or to pay off other debt. "Home equity extracted through additional borrowing cannot fund higher consumption indefinitely," the bank warns.

BMO economist Michael Gregory predicted that the bank will start raising rates around the end of this year or early next, if it believes its prediction for reaching full capacity is on course.

The TD Bank's Francis Fong suggested a hike of no more than one percentage point over the next year and a half , especially with the U.S. Federal Reserve likely on hold until 2014.

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