Bank of Canada chief more confident in recovery

Thu Jan 21, 2010 5:31pm EST
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By Louise Egan

OTTAWA (Reuters) - Canada's economy is on track to recover this year and the outlook has improved since October, the Bank of Canada said on Thursday, while giving few hints on how soon it will start raising record-low interest rates.

Bank Governor Mark Carney told Canadians to prepare for an eventual return to "normal" interest rates from the key rate's historically low 0.25 percent level, but kept markets guessing about the timing of his exit strategy.

The bank held rates steady on Tuesday and repeated its promise to keep them unchanged until the end of June, conditional on inflation staying on track.

"To be honest, (we) don't feel compelled to provide any further guidance at this stage beyond that," Carney told reporters at a news conference.

When asked about criticism that the bank had been "trigger-happy" after past recessions by hiking rates too soon and whether it would wait longer before doing so this time, Carney defended the bank as having "one of the best track records in the world" in meeting its 2 percent inflation target.

"It may not be a convenient path for somebody's trading position but if they set their trading position on the basis of achieving the 2 percent CPI inflation target it would be the appropriate path and I'm confident we will continue."

In an interview with CBC Television, Carney repeated the bank's rising concern about the level of household debt in Canada, first flagged by the bank last month, saying he was more concerned than he was one year ago.

Carney said he expected private businesses to start doing most of the heavy lifting to boost economic growth in the second half of this year. That would take some of the load off the central bank and the government, whose fiscal stimulus and rock-bottom lending rates have largely been responsible for the growth so far.   Continued...

<p>Bank of Canada Governor Mark Carney listens to a question during a news conference upon the release of the Monetary Policy Report in Ottawa January 21, 2010. The Bank of Canada repeated on Thursday its pledge to keep interest rates at current levels until the end of June, so long as inflation remains in check, and declined to forecast rates beyond June. REUTERS/Chris Wattie</p>