The Bank of Canada's governor sounded the alarm about the long-term cost of massive borrowing, both by governments and ordinary Canadians, in a news conference Thursday.

While Mark Carney was optimistic that Canada's economy would recover throughout 2010, he expressed concern that historically low interest rates might have too many Canadians garnering too much debt.

"People should manage their affairs prudently in anticipation that at some point rates will return to a more normal level," Carney warned.

Borrowing by Canadians grew at a brisk seven per cent rate this year, far outpacing gains in the economy.

"We do have some concerns about it. Obviously consumer borrowing cannot grow faster than the economy forever," Carney said.

Carney said the bank will "retain flexibility" in policies like keeping interest rates low or printing more cash. It is expected to keep interest rates at 0.25 per cent until at least June 2010. It is the lowest rate Canada has ever seen.

"The job of the Bank of Canada is to consider all factors that are having an effect on inflation in Canada," Carney said.

The central back said Canada's recovery from the recession is growing stronger, but Canadians shouldn't expect things to return to normal any time soon as the soaring loonie holds the economy back.

In its latest outlook on the economy, the bank says Canada is making progress, but predicts the country's economy won't be fully back on track until the end of 2011.

"The stronger than assumed Canadian dollar ... could act as a significant further drag for growth," Carney said.

He predicts the high loonie -- which closed slightly down at 95.44 cents Thursday -- will deter foreigners from buying Canadian products, which could shrink growth to lower than what is expected.

The bank says Canada's economy is expected to grow two per cent in the third quarter, and 3.3 per cent during the final three months of 2009.

That's a jump from the original estimates of 1.3 per cent and three per cent that it made in July for the third and fourth quarters respectively.

Responding to the predictions, the Toronto Stock Exchange's composite index closed up 91.35 points to finish Thursday at 11,533.37.

The reasons for the bank's positive attitude towards growth are stable commodity prices for products like oil, increased consumer confidence, and the fact that global markets have stabilized faster than originally expected.

It says government stimulus and consumer demand is spurring growth in the second half of this year.

The bank is predicting the overall annual growth to be lower than forecasted, with three per cent in 2010 and 3.3 per cent in 2011.

It says that all the predictions depend on whether world powers will continue to enact good policies, including building up reserves in the U.S., Europe and China.

Carney said the bank is monitoring the housing market, and said it has some concerns about a housing bubble similar to the one in the U.S., but that structural differences between Canadian and U.S. banking systems will likely prevent a similar situation from happening north of the border.

At least one Canadian economist says Canada has managed to get through economic problems in the past and is poised to do so again soon, albeit at a slower rate.

"I think we can take some comfort in the fact that our deficits as a share of the economy have been worse," Derek Burleton, a senior economist at the TD Bank Financial Group, told CTV News Channel.

"The debt load in the 90s was a lot higher."

"It's going to be a very slow recovery," said Burleton. "There's good reason to think the cruising speed of our economy going forward is not going to be what it has been in the past."