Mark Carney: Summary of the latest 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, 20 July 2011.
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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.
 The global economic expansion is proceeding broadly as projected in April, with
modest growth in major advanced economies and robust expansions in emerging
economies.
 Growth in the U.S. economy has been slower than expected. It continues to be
restrained by the consolidation of household balance sheets and slow growth in
employment.
 While growth in core Europe has been stronger than expected, necessary fiscal
austerity measures in a number of countries will restrain growth over the projection
horizon. In Japan, the economy has begun to recover from the disasters that struck
on 11 March, but the level of economic activity will remain below previous
expectations.
 In contrast, growth in emerging-market economies, particularly China, remains very
strong. As a consequence, commodity prices are expected to remain at elevated
levels, following recent declines. These high prices, combined with persistent
excess demand in major emerging-market economies, are contributing to broader
global inflationary pressures.
 Widespread concerns over sovereign debt have increased risk aversion and
volatility in financial markets. The Bank's projection assumes that authorities are
able to contain the ongoing European sovereign debt crisis, although there are clear
risks around this outcome.
 In Canada, the economic expansion is proceeding largely as projected, although the
expected rotation of demand is somewhat slower than had been anticipated.
Household spending remains solid and business investment robust. Net exports
remain weak, reflecting modest U.S. demand and ongoing competitiveness
challenges, particularly the persistent strength of the Canadian dollar.
 Despite increased global risk aversion, financial conditions in Canada remain very
stimulative and private credit growth is strong.
 Following an anticipated slowdown in growth during the second quarter due to
temporary supply chain disruptions and the impact of higher energy prices on
consumption, the Bank expects growth in Canada to re-accelerate in the second half
of 2011.
Over the projection horizon, business investment is expected to remain strong,

household spending to grow more in line with disposable income, and net exports to
become more supportive of growth.
 Relative to the April projection, growth in household spending is now projected to be
slightly firmer, reflecting higher household income, and net exports to be slightly
weaker, reflecting more subdued U.S. activity.
 Overall, the Bank projects the economy will expand by 2.8 per cent in 2011,
2.6 per cent in 2012, and 2.1 per cent in 2013, returning to capacity in the middle of
2012.
 In the near term, total CPI inflation is expected to remain above 3 per cent, largely
reflecting temporary factors such as significantly higher food and energy prices. It is
expected to return to the 2 per cent target by the middle of 2012 as the temporary
factors unwind, excess supply in the economy is gradually absorbed, labour
compensation growth stays modest, productivity recovers, and inflation expectations
remain well-anchored.
 Core inflation is slightly firmer than anticipated, owing to temporary factors and to
more persistent strength in the prices of some services. Core inflation is now
expected to remain around 2 per cent over the projection horizon.
 Although the global outlook remains broadly unchanged, global risks have
intensified, most notably in Europe. The three main upside risks to inflation in
Canada relate to the possibility of higher-than-projected commodity prices and
global inflation, stronger momentum in Canadian household spending, and the
possibility that there is less excess capacity in the Canadian economy.
 The three main downside risks to inflation in Canada relate to sovereign debt
concerns in Europe, headwinds from the persistent strength of the Canadian dollar,
and the possibility that growth in Canadian household spending could be weaker
than projected.
 Overall, the Bank judges that the risks to the inflation outlook in Canada are roughly
balanced over the projection horizon.
 Reflecting all of these factors, the Bank yesterday maintained the target for the
overnight rate at 1 per cent. To the extent that the expansion continues and the
current material excess supply in the economy is gradually absorbed, some of the
considerable monetary policy stimulus currently in place will be withdrawn,
consistent with achieving the 2 per cent inflation target. Such reduction would need
to be carefully considered.
With that, Tiff and I would be pleased to take your questions.