Bank of Canada chief: "A lot" of headwinds hitting economy

Wed Oct 31, 2012 5:15pm EDT
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By Randall Palmer

OTTAWA (Reuters) - Bank of Canada Governor Mark Carney, on the heels of telling markets that an interest rate hike was not imminent, offered several reasons on Wednesday for why the central bank has kept rates exceptionally low.

"There are a lot of headwinds against the Canadian economy from the rest of the world, there's a challenge to encourage business to invest, there are pressures on the currency," Carney told a parliamentary committee.

"There are a variety of reasons why it's advantageous to have very accommodative monetary policy and that's what we have here in Canada, very accommodative monetary policy."

The Bank of Canada is the only central bank in the Group of Seven leading industrialized nations which has hinted at raising interest rates. But Carney has effectively cautioned that it will be some time before it withdraws monetary stimulus.

That message was reinforced on Wednesday by data showing the Canadian economy shrank in August for the first time in six months, an unexpected contraction that pointed to a sharp slowdown in third-quarter growth.


Carney, who was testifying to the Senate banking committee following the release of the bank's quarterly Monetary Policy Report, was asked what could be done to contain what has been a hot housing market and high household debt levels.

He repeated his line that moving rates higher should be the last line of defense, though he said that ideally monetary policy should be complementary to other government measures.   Continued...

Bank of Canada Governor Mark Carney waits to testify before the Commons finance committee on Parliament Hill in Ottawa October 30, 2012. REUTERS/Chris Wattie