Are calls for higher interest rates premature?

To raise or not to raise rates? That is Mark Carney's question.

Bank of Canada announcements this week that it's raising its economic forecast and considering a "modest withdrawal" of monetary policy stimulus has many economists warning that a rate hike is on the horizon.

A recent Reuters survey of primary market dealers shows the median forecast for the next rate increase has moved to the first quarter of 2013 from the third quarter of 2013.

But David Madani, economist at Capital Economics, is not one of them.

He says the weak balance sheets of Canadian households and a fragile global economy will keep the Bank of Canada from moving too quickly.

"I think the housing sector and households in general are too vulnerable to rate increases, so I don't think the bank will pull the trigger on raising rates," he tells BNN.

Madani adds that if the Bank of Canada does increase rates this summer or early fall, it will be forced to back pedal and quickly lower them.

He also says in a note to clients that the bank's forecast for 2.4-percent growth both this year and next is far too dependent on housing. Madani says he seriously doubts that the economy will achieve this growth because household finances are already overstretched and household incomes will likely only grow moderately.

Public sector job cuts at both the federal and provincial governments will also weigh on the Canadian economy, he says.

Madani expects the bank to hold the line on rates this year and next.

But, Madani is increasingly cutting a lonely figure in his bearish calls on interest rates.

Economists at the Bank of Montreal, for one, have become more bullish on rates. They pushed their forecast for a rise in interest rates to January 2013.

"Even with all the various and sundry headwinds swirling around the globe, the Canadian economy just keeps chugging along at around 2-percent growth, or slightly better, gradually closing the output gap and keeping inflation near 2 percent. In that environment, it's increasingly tough to justify a near emergency rate setting of 1 percent," BMO's Douglas Porter says. "And while credit growth is moderating notably, and most homebuyers are well-behaved, the persistent heat in Toronto's housing market is a loud hint of the dangers a low-for-long policy runs."

This isn't the first time the Bank of Canada has hinted that rates will move higher. At this time last year the bank used very similar language only to back down once economic concerns flared up in the United States and Europe.

Porter thinks this time is different.

"Our core view is that while the Bank is talking tough, and that they would strongly prefer to start hiking relatively soon (even by the summer), at least one of the big risks out there will flare and keep them on hold for a spell longer," he says. "However, the delay will likely prove briefer this time, and we now look for the Bank to begin raising rates again early in 2013, eventually boosting its key rate to 2 percent by the end of next year."

The bank has held its benchmark interest rate at one percent since September 2010.