May 6, 2009 / 11:10 PM / 9 years ago

Unconventional moves not needed yet: Bank of Canada

TORONTO (Reuters) - The Bank of Canada sees no need yet to use unconventional policy to boost the country’s slumping economy and is encouraged by signs that capital and interbank markets are thawing, Governor Mark Carney said on Wednesday.

But the head of Canada’s central bank warned he expects job losses will worsen and that there will be more shocks and setbacks.

The Bank of Canada last month cut its benchmark interest rate to 0.25 percent -- its lowest level in history -- and made a conditional pledge to keep it there for more than a year.

It also laid out a framework for quantitative easing -- or printing money to buy market securities -- but disappointed many market players by not announcing specific plans.

“The position where we are right now is, we think, our overall stance in policy is sufficient -- the combination of where rates are and our conditional commitment,” he told a Senate committee.

“So we don’t currently envision the need to provide additional stimulus through either quantitative or credit easing.”

Carney said further easing could be triggered by a “material persistent net negative shock to the economic outlook” that would cause the bank to miss its 1 percent to 3 percent target range for inflation.

The central bank defines credit easing as targeted buying of private sector assets in specific credit markets where liquidity is lacking. But this would be done without creating new money.

Carney said any such operation would only be done in close coordination with the Canadian government.

The Oxford and Harvard-trained economist and former Goldman Sachs banker warned that the Canadian economy will still face shocks and setbacks.

“We continue to expect, even though we see growth toward the end of the year and into 2010, that the employment situation will deteriorate further before it improves,” he said.

Carney said he was encouraged by improving conditions in capital and interbank lending markets, which froze up with the onset of the global financial crisis.

“Canadian bank funding costs have really started to fall quite sharply,” he said.

Carney said the progress of other countries in fixing their banking systems would be critical to the outlook for the Canadian economy.

With additional reporting by Randall Palmer, David Ljunggren, Ka Yan Ng and Frank Pingue; editing by Jeffrey Jones

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