Bank of Canada says can act to protect stability

Mon May 7, 2012 7:38pm EDT
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By Nicole Mordant

VANCOUVER (Reuters) - The Bank of Canada's low inflation mandate does not prevent it from acting, in exceptional circumstances, to protect overall financial stability, a senior official said on Monday.

Deputy Governor John Murray said it was a myth that "focusing on price stability limits the Bank's ability to pursue its other major objective, financial stability."

"While at times there may appear to be tensions between these objectives, the two are in fact inextricably linked; it is impossible to achieve one of them without maintaining the other," Murray said in a speech to the Mortgage Brokers Association of British Columbia.

The central bank's goal is to keep inflation at 2 percent.

But the bank also watches overall financial stability, and Bank of Canada officials have previously voiced concerns over the Canadian housing market, including the heated condo sector in Vancouver and Toronto.

Yet the bank has indicated it is reluctant to hike interest rates solely to combat soaring property prices because of the effect it could have on the rest of the economy.

Murray reiterated that Canadian policymakers have a variety of options.

"Although other policy levers, such as bank regulation and macroprudential tools, are typically the first lines of defense in ensuring financial stability, monetary policy can, in exceptional circumstances, play a complementary role in achieving this end," he said.   Continued...