BOC sees rate flexibility, welcomes U.S. bank plan
By Louise Egan
OTTAWA (Reuters) - The Bank of Canada has plenty of flexibility to cut rates and expand liquidity operations if needed, but it expects a U.S. bank stabilization plan to mark the gradual return of confidence to the global financial system, Governor Mark Carney said on Tuesday.
Grilled by legislators on a parliamentary finance committee, Carney also defended his highly questioned forecast for Canada's quick recovery from the recession to growth of 3.8 percent next year.
Carney sought to assure legislators that the central bank has not run out of options to stimulate the economy and that, in comparison to some other countries, its rate cuts have translated into lower mortgage and other rates throughout the financial system.
"There is further one could move if we saw fit. We've just taken a decision; I'm not going to take another one sitting at the table," Carney said.
The bank has cut its benchmark overnight rate by 350 basis points since December 2007 to a 50-year low of 1 percent. Its last cut was on January 22 and its next decision is due March 3.
"The actual cost of credit in this country has gone down," he said. "One can expect an additional stimulus if that were appropriate and we're not taking that decision yet."
The bank has injected billions into money markets, peaking at C$40 billion ($32 billion) in December, and Carney said the bank stands ready to expand those operations if conditions warrant. He said the terms, the scale and the partners with which the bank transacts could all expand.
"Currently, we think it's sized appropriately but we could change that," he said. Continued...