Mark Carney: Monetary policy report
Opening statement by Mr Mark Carney, Governor of the Bank of Canada, at the press
conference following the release of the Monetary Policy Report, Ottawa, 24 October 2012.
* * *
Good morning. Tiff and I are pleased to be here with you today to discuss the October
Monetary Policy Report, which the Bank published this morning.
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The global economy has unfolded broadly as the Bank projected in its July MPR.
Growth has slowed in all major regions. The economic expansion in the United
States is progressing at a gradual pace. Europe is in recession and recent indicators
point to a continued contraction.
•
In China and other major emerging economies, growth has slowed somewhat more
than expected. However, there are signs of stabilization around current growth
rates.
•
Notwithstanding the slowdown in global economic activity, prices for oil and other
commodities produced in Canada have, on average, increased in recent months.
Global financial conditions have improved, supported by aggressive policy actions of
major central banks. Sentiment, though, remains fragile.
•
In Canada, while global headwinds continue to restrain economic activity, domestic
factors are supporting a moderate expansion. Following the recent period of
belowpotential growth, the economy is expected to pick up and return to full capacity by
the end of 2013.
•
The Bank continues to project that the expansion will be driven mainly by growth in
consumption and business investment, reflecting in part very stimulative domestic
financial conditions.
•
Housing activity is expected to decline from historically high levels. The household
debt burden is expected to rise further before stabilizing by the end of the projection
horizon.
•
There are upside and downside risks around the evolution of household imbalances.
Residential investment could regain momentum, thereby reinforcing existing
imbalances. Conversely, continuing high household debt levels could lead to a
sharper-than-expected deceleration in household spending. In this context,
Canadian authorities are co-operating closely to monitor the financial situation of the
household sector, and are responding appropriately.
•
Canadian exports are projected to pick up gradually, but remain below their
prerecession peak until the first half of 2014, reflecting weak foreign demand and
ongoing competitiveness challenges. These challenges include the persistent
strength of the Canadian dollar, which is being influenced by safe haven flows and
spillovers from global monetary policy.
•
After taking into account revisions to the National Accounts, which had the effect of
raising measured growth for this year, the Bank now projects that the economy will
grow by 2.2 per cent in 2012. Going forward, we expect growth of 2.3 per cent in
2013 and 2.4 per cent in 2014.
•
Core inflation has been lower than expected in recent months. This reflects
somewhat softer prices across a wide range of goods and services. Core inflation is
expected to increase gradually over coming quarters, reaching 2 per cent by the
middle of 2013 as the economy gradually absorbs the current small degree of slack,
the growth of labour compensation remains moderate and inflation expectations stay
well-anchored.
• Total CPI inflation has fallen noticeably below the 2 per cent target, as expected. It
is projected to return to target by the end of 2013, somewhat later than previously
anticipated.
•
The inflation outlook in Canada is subject to significant risks. The Bank's projection
assumes that authorities in Europe are able to contain the ongoing crisis, and that
the U.S. fiscal cliff will be avoided.
- The three main upside risks relate to the possibility of higher global inflationary
pressures, stronger Canadian exports and renewed momentum in Canadian
residential investment.
- The three main downside risks relate to the European crisis, weaker demand
for Canadian exports and the possibility that growth in Canadian household
spending could be weaker.
•
Overall, the Bank judges that the risks to Canada's inflation outlook 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. Over time, some modest withdrawal of monetary policy
stimulus will likely be required, consistent with achieving the 2 per cent inflation
target. The timing and degree of any such withdrawal will be weighed carefully
against global and domestic developments, including the evolution of imbalances in
the household sector.
With that, Tiff and I would be pleased to take your questions.