October 30, 2012 / 7:59 PM / 5 years ago

HIGHLIGHTS-Bank of Canada's Carney speaks in Ottawa

Oct 30 (Reuters) - Below are key quotes from an appearance by Bank of Canada Governor Mark Carney on Tuesday in Ottawa:


“The last line of defense is monetary policy. One doesn’t want to lead with monetary policy, but one doesn’t want monetary policy working at cross purposes, easing when everything else is tightening, for example, when there is an economy-wide vulnerability. Monetary policy can play a complementary role. It’s the last line of defense. And that’s why we work closely with other authorities to ensure that all potential mechanisms and tools can be used to greatest effect.”


“The growth rate of household spending has in fact slowed and second of all ... the government has taken a number of steps, four series of measures to try and tighten up the rules, the CMHC rules, regarding mortgage insurance. But I think we have to remain vigilant and there are a number of options, regulatory options. But the most recent changes have just been introduced and we’re starting to see the effects of those changes now. From our standpoint, now is the time to observe what is going on, to see what the impact of those measures is at this point.”


“These measures as a whole are contributing to  a more sustainable development of the housing market here in Canada and we welcome those and we welcome also the measures that OSFI (Office of the Superintendent of Financial Institutions) has taken to improve mortgage underwriting standards of financial institutions.”


“Obviously it’s  very early days and the damage is unfortunately not yet complete. The estimates on the order of $20 billion are very early stage. What I would say in general is that with these type of disasters there obviously is an impact on growth and activity. Initially there are activities that just can never be redone, so a visit to a restaurant or a movie or something like that didn’t happen over the course of the last few days, that is lost GDP. There’s obviously destruction, which isn’t actually measured but then there’s the rebuilding which is measured and the extra activity and the shifting in time of activity in general, I‘m not trying to belittle the hardship that is being felt and continues to be felt, but in general it tends to be a relatively negligible impact over time.”


“In our hierarchy of risk we would say that the greatest risks are external. You referenced the European crisis quite rightly. Our expectation is that that crisis will remain contained, that is different than it being resolved, but it will remain contained. The next, in the near term, is the potential resolution or not of the so-called fiscal cliff in the United States. This is something that if not resolved, and that’s not our expectation, but we’re no wiser than anyone else in terms of the eventual resolution of this, but if the fiscal cliff were not to be resolved and all the measures were to come into force on the books in the United States, the U.S. would almost certainly be in recession next year with a knock-on effect obviously for Canadian exporters, business investment, etcetera. We’re not predicting that but it is a possibility.”


“I would note, as we do note in the report, that we do have a domestic risk which bears attention, which is the level of household indebtedness. This is a risk that we and others have been flagging for some time. It has built over time, since we’ve both been here in 2008, and at present, given measures that have been taken by OSFI, by the government, and we think as well, the stance and the leaning of monetary policy in Canada, there are mixed signals. And I say that in a positive sense in that there are some signs that accumulation of household debt is slowing. So the pace is slowing, it’s still accumulating, and that some adjustment appears to be under way in the housing market. This requires continued vigilance by all parties and we intend to play our part in that.”


“Any adjustment to monetary policy would take into account the evolution of domestic and global factors, including the imbalances in the household sector.”


“We will take whatever actions are necessary ... in a view that we have in this projection, which includes some modest withdrawal of monetary policy stimulus over the course of the projection, a projection which runs until the end of 2014.”


“I would not say we are near lasting resolution on the issue, but that is not to diminish the progress that has been made, the important progress that has been made of the course of the last year. Very importantly, the measures undertaken by the European Central Bank over the summer, the so-called OMT program, the intent which is to remove so-called convertibility risk from European government borrowing.”

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