Carney says more rate cuts likely

Sat Feb 9, 2008 8:27am EST
 
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By Louise Egan

TOKYO (Reuters) - Further interest rate cuts are likely needed in Canada despite reports showing the economy has been more resilient to the U.S. slowdown than expected, Bank of Canada Governor Mark Carney said on Saturday.

In his first news conference since becoming governor on February 1, Carney declined to take a stance on the preferred range for the value of the Canadian dollar but otherwise largely sang from the same song sheet as his predecessor, David Dodge.

"I'm comfortable with the statement that additional monetary stimulus is likely to be required in the near term," Carney told reporters after a Group of Seven meeting in Tokyo, referring to the bank's January 22 release.

"The timing and degree of that stimulus will be determined at future fixed announcement dates," he said, suggesting he may not have ruled out a bolder 50 basis-point cut. He said the decision would only be made after analyzing and making judgments about all data available at that time.

Dodge lowered the bank's overnight target rate by 25 basis points both in December and January and hinted at more to come as the specter of a U.S. recession looms and inflation is below target.

In a January 24 Reuters poll, most market players expected Carney's first move in his new job would be to slash 50 basis points off the bank's lending rate in March. But jaw-dropping job creation has since made aggressive easing seem less likely.

Carney, 42, said the upbeat January numbers for job creation and housing starts confirmed what the bank already knew -- that domestic demand is strong. "We don't adjust our outlook to individual data aspects."

Carney stayed away from the tricky foreign exchange issue when asked if he was worried that the interest rate differential between Canada and the United States would drive the Canadian dollar higher. For the first time since 2004, the U.S. benchmark rate is a full percentage point lower than in Canada.   Continued...

 
<p>Bank of Canada governor Mark Carney arrives to testify before the Commons finance committee on Parliament Hill in Ottawa December 5, 2007. Further interest rate cuts are likely needed in Canada despite reports showing the economy has been more resilient to the U.S. slowdown than expected, Carney said on Saturday. REUTERS/Chris Wattie</p>