Mark Carney: Summary of the latest Monetary Policy Report
Opening statement by Mr Mark Carney, Governor of the Bank of Canada and Chairman of
the Financial Stability Board, at the press conference following the release of the Monetary
Policy Report, Ottawa, 18 July 2012.
* * *
Good morning. Tiff and I are pleased to be here with you today to discuss the July Monetary
Policy Report, which the Bank published this morning.
 Global growth prospects have weakened since the Bank released its April MPR. The
economic expansion in the United States continues at a gradual but somewhat
slower pace, while developments in Europe point to a renewed contraction.
 In China and other emerging economies, the deceleration in growth has been
greater than anticipated, reflecting past policy tightening and weaker external
demand.
 This slowdown in global activity has led to a sizeable reduction in commodity prices,
although they remain elevated. The combination of increasing global excess
capacity over the projection horizon and reduced commodity prices is expected to
moderate global inflationary pressures.
 Global financial conditions have also deteriorated since April, with periods of
considerable volatility.
 While global headwinds are restraining Canadian economic activity, domestic
factors are expected to support moderate growth in Canada. The Bank expects the
economy to grow at a pace roughly in line with its production potential in the near
term, before picking up through 2013.
 Consumption and business investment are expected to be the primary drivers of
growth, reflecting very stimulative domestic financial conditions. However, their pace
will be influenced by external headwinds, notably the effects of lower commodity
prices on Canadian incomes and wealth, as well as by record-high household debt.
Housing activity is expected to slow from record levels.
 Government spending is not projected to contribute to growth in 2012. It is expected
to contribute only modestly thereafter, in line with plans to consolidate spending by
federal and provincial governments.
 Canadian exports are projected to remain below their pre-recession peak until the
beginning of 2014. This reflects the dynamics of foreign demand and ongoing
competitiveness challenges, including the persistent strength of the Canadian dollar.
 The Bank projects that the economy will grow by 2.1 per cent in 2012, 2.3 per cent
in 2013 and 2.5 per cent in 2014. The economy is expected to reach full capacity in
the second half of 2013, thus operating with a small amount of slack for somewhat
longer than previously anticipated.
 Core inflation is forecast to remain around 2 per cent over the projection horizon as
the economy operates near its production potential, growth in labour compensation
stays moderate and inflation expectations remain well anchored. Given the recent
drop in gasoline prices and with futures prices suggesting persistently lower oil
prices, the Bank expects total CPI inflation to remain noticeably below the 2 per cent
target over the coming year before returning to target around mid-2013.
The inflation outlook in Canada is subject to significant risks.

 The three main upside risks to inflation in Canada relate to the possibility of higher
global inflationary pressures, stronger Canadian exports and stronger momentum in
Canadian household spending.
 The three main downside risks to inflation in Canada relate to the European crisis,
weaker global momentum and the possibility that growth in Canadian household
spending could be weaker.
 Overall, the Bank judges that the risks to the inflation outlook in Canada are roughly
balanced over the projection period.
 Reflecting all of these factors, the Bank yesterday maintained the target for the
overnight rate at 1 per cent. To the extent that the economic expansion continues
and the current excess supply in the economy is gradually absorbed, some modest
withdrawal of the present considerable monetary policy stimulus may become
appropriate, consistent with achieving the 2 per cent inflation target over the medium
term. The timing and degree of any such withdrawal will be weighed carefully
against domestic and global economic developments.
With that, Tiff and I would be pleased to take your questions.