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, Ontario, 23 January 2013.
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Good morning. Tiff and I are pleased to be here with you today to discuss the January
Monetary Policy Report,
which the Bank published this morning.
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While the global economic outlook is slightly weaker than the Bank had projected in
October MPR, global tail risks have also diminished.
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The economic expansion in the United States is continuing at a gradual pace,
restrained by ongoing public and private deleveraging, global weakness and
uncertainty related to fiscal negotiations.
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Europe remains in recession, with a somewhat more protracted downturn now
expected than in October.
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Growth in China is improving, though economic activity has slowed further in some
other major emerging economies.
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Supported by central bank actions and by positive policy developments in Europe,
global financial conditions are more stimulative.
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Commodity prices have remained at historically elevated levels, though temporary
disruptions and persistent transportation bottlenecks have led to a record discount
on Canadian heavy crude.
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In Canada, the slowdown in the second half of 2012 was more pronounced than the
Bank had anticipated, owing to weaker business investment and exports.
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Caution about high debt levels has begun to restrain household spending.
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The Bank expects economic growth to pick up through 2013.
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Business investment and exports are projected to rebound as foreign demand
strengthens, uncertainty diminishes and the temporary factors that have weighed on
resource sector activity are unwound.
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Nonetheless, exports should remain below their pre-recession peak until the second
half of 2014, owing to a lower track for foreign demand and ongoing competitiveness
challenges, including the persistent strength of the Canadian dollar.
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Consumption is expected to grow moderately and residential investment to decline
further from historically high levels. The Bank expects trend growth in household
credit to moderate further, with the debt-to-income ratio stabilizing near current
levels.
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Relative to the October MPR, Canadian economic activity is expected to be more
restrained. Following an estimated 1.9 per cent in 2012, the economy is expected to
grow by 2.0 per cent in 2013 and 2.7 per cent in 2014. The Bank now expects the
economy to reach full capacity in the second half of 2014, later than anticipated in
October.
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Core inflation has softened by more than the Bank had expected, with more muted
price pressures across a wide range of goods and services, consistent with the
unexpected increase in excess capacity.
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Total CPI inflation has also been lower than anticipated, reflecting developments in
core inflation and weaker-than-projected gasoline prices.
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Total CPI inflation is expected to remain around 1 per cent in the near term. It is
expected to rise gradually, along with core inflation, to the 2 per cent target in the
second half of 2014 as the economy returns to full capacity and inflation
expectations remain well-anchored.
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Despite the reduction in global tail risks as a result of a series of actions by
European and American authorities, the inflation outlook in Canada is still subject to
significant risks.
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The three main upside risks to inflation in Canada relate to the possibility of
stronger-than-expected growth in the U.S. economy, higher Canadian exports and
renewed momentum in Canadian residential investment.
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The three main downside risks to inflation in Canada relate to the European crisis,
more protracted weakness in business investment and exports in Canada, and the
possibility that growth in Canadian household spending could be weaker.
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Overall, the Bank judges that the risks to the inflation outlook in Canada are roughly
balanced over the projection period.
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Reflecting all of these factors, the Bank today maintained the target for the overnight
rate at 1 per cent.
•
While some modest withdrawal of monetary policy stimulus will likely be required
over time, consistent with achieving the 2 per cent inflation target, the more muted
inflation outlook and the beginnings of a more constructive evolution of imbalances
in the household sector suggest that the timing of any such withdrawal is less
imminent than previously anticipated.
With that, Tiff and I would be pleased to take your questions.