Canada's central bank chief sees positive signs

Sat May 2, 2009 7:15pm EDT
 
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TORONTO (Reuters) - Canada's economy is faring better in the second quarter than it was at the start of the year, the head of the country's central bank said in remarks published by the CBC on Saturday.

"Second quarter is going to be tough. But we see ... the pace of decline slowing," Bank of Canada Governor Mark Carney told the Canadian Broadcasting Corporation in interview excerpts published on its website.

Carney said Canadian businesses had made progress in clearing out excess inventories that has put a chill on fresh production.

"It makes this half of the year bad," he said. "But once you've cleaned out the inventory stock, then it means you start producing more."

The central bank has forecast that the Canadian economy will shrink 3 percent this year, having revised a projection of a 1.2-percent contraction.

After criticism by outside economists, it also backed away from what many considered an overly optimistic outlook for next year, cutting its growth estimate to 2.5 percent from 3.8 percent.

In the CBC excerpts, Carney said consumer confidence was showing signs of a rebound, and there also were encouraging developments in the housing market. On the negative side, the current outlook for employment was still unfavorable.

Last week Carney told a parliamentary committee that a cut in the benchmark interest rate to nearly zero, as well as the bank's promise to keep rates low though mid-2010, would stimulate the economy. He said the bank's moves had already improved credit conditions.

The bank has lowered its overnight rate to 0.25 percent, for a cumulative reduction of 4.25 percentage points since late 2007.

The excerpts were from an interview with Carney to be broadcast on CBC TV in full on Sunday (here).

(Reporting by Frank McGurty; Editing by Xavier Briand)

 
<p>Bank of Canada Governor Mark Carney prepares to testify before the Commons finance committee on Parliament Hill in Ottawa April 28, 2009. REUTERS/Chris Wattie</p>