Bank of Canada head sees fallout from global woes

Mon Oct 15, 2012 6:06pm EDT
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By Jennifer Kwan

NANAIMO, British Columbia (Reuters) - The Bank of Canada will take whatever action is necessary to keep inflation on target, and its economic forecasts next week will reflect the fallout from extreme global uncertainty, central bank chief Mark Carney said on Monday.

Carney also said there were some signs the country's once hot housing market was easing, but warned that the data could be volatile as the effect of fiscal and regulatory changes designed to curb the mortgage market took effect.

Since April, Carney - alone among his Group of Seven peers - has regularly talked about the possible need to raise interest rates from near-record lows as the economy recovers, even as data showed Canada was being hurt by challenges in Europe and the United States.

His speech on Monday omitted the hawkish language, although it was not clear Carney was abandoning the monetary tightening bias altogether.

"The bank will take whatever action is appropriate to achieve the 2 percent CPI (consumer price index) inflation target over the medium term," Carney said.

As recently as October 4, senior deputy governor Tiff Macklem repeated the bank's line that some withdrawal of the "considerable monetary policy stimulus" might become appropriate.

Carney also highlighted the bank's possible role in leaning against asset bubbles, naming Canada's high household debt as an example. This suggests a willingness to hike rates if the debt were deemed beyond the scope of fiscal and regulatory measures.

Carney later said in a press conference that he was naming an example of the various ways the bank could act.   Continued...