Bank of Canada says housing seems firmly valued

Tue Apr 6, 2010 11:33am EDT
 
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TORONTO (Reuters) - Canada's housing market is not in a price bubble but seems firmly valued and housing starts are rising in response, Bank of Canada Governor Mark Carney said in a magazine interview released on Tuesday.

"We're seeing starts up above replacement levels. So we expect to see some moderation for the balance of this year," Carney said in an interview with Maclean's magazine.

The interview, conducted on March 16 and published on the magazine's website on Tuesday, also touched on Carney's belief that central banks were a crucial player in helping to smooth financial markets during the panic conditions of the recent financial crisis.

He said the Bank of Canada's monetary policy, rooted in inflation-targeting, is one of the reasons Canada escaped the crisis relatively unharmed.

He criticized the idea that central banks should target asset prices when setting monetary policy.

"The idea that monetary policy can surgically target asset prices is naive and dangerous and diversionary from what we have learned, which is it should have a core focus, which is the consumer price index," Carney said.

He said it was possible for an inflation-targeting bank to temporarily shift from its targets to pop an asset bubble. But he stressed that markets would need to trust that the departure was temporary.

Carney also said he did not favor a tax on banks' financial transactions, also known as a "Tobin tax", as the Group of 20 leading countries try to forge a post-crisis deal on bank regulation.

(Reporting by Ka Yan Ng; editing by Peter Galloway)