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, 22 July 2010.
* * *
Good morning. It is my pleasure to introduce to you Tiff Macklem, who assumed the post of
Senior Deputy Governor of the Bank of Canada on Canada Day. We are pleased to be here
Monetary Policy
with you today to discuss the July Report, which the Bank published this
morning.

The global economic recovery is proceeding but is not yet self-sustaining. A greater
emphasis on balance sheet repair by households, banks, and governments in a
number of advanced economies is expected to temper the pace of global growth
relative to the Bank's outlook in April.

The policy response to the European sovereign debt crisis has reduced the risk of
an adverse outcome and increased the prospect of sustainable long term growth.
However, it is also expected to slow the global recovery over the projection horizon.
Global growth is now projected to average slightly less than 4 per cent through
2012.

The U.S. economy continues to recover, but growth is projected to be slightly
weaker than anticipated in April. This is owing to the fallout from the sovereign debt
crisis in Europe and a more protracted recovery in household demand.

In Canada, the economic recovery is unfolding largely as expected, and is
supported by continued fiscal and monetary stimulus, higher terms of trade,
improved labour markets, and household confidence, as well as the global recovery.

The level of real GDP is now close to its pre-recession peak.

The Bank expects the pace of growth in Canada to moderate to a slightly greater
degree than it had expected in April. GDP is now projected to grow 3.5 per cent in
2010, 2.9 per cent in 2011, and 2.2 per cent in 2012.

The Bank continues to expect consumer spending to slow to a pace more consistent
with income growth.
 Business fixed investment has been more subdued than expected and its level is
still depressed. Going forward, we expect it to increase to levels consistent with
previous recoveries, driven by the need to expand capacity and to increase
productivity in a more competitive international environment.

Inflation in Canada has been broadly in line with the Bank's April projection. Both
total CPI and core inflation are expected to remain near 2 per cent throughout the
projection period. The Bank will look through the transitory effects on inflation of
changes to provincial indirect taxes.

The risks around this projection remain elevated and are judged to be roughly
balanced over the projection horizon. Globally, on the upside, the boost in
confidence as advanced countries restore fiscal sustainability could generate
greater-than-expected offsets to the fiscal consolidation. On the downside, global
private demand around the world, including in the United States, may be insufficient
to sustain the recovery.

In Canada, there are important two-sided risks to the outlook for private demand. On
the upside, private demand might have greater momentum than expected, reflecting
strong confidence and easy credit conditions. On the downside, it is possible that
households reduce expenditures more than currently anticipated or that the recovery
in business investment is further delayed.

Since April 2010, with improvements in the economy, the Bank has ended its
extraordinary conduct of monetary policy. On 20 April 2010, the Bank removed its
conditional commitment, which had provided considerable additional stimulus during
a period of very weak economic conditions and major downside risks to the global
and Canadian economies.

On 1 June 2010, the Bank raised its target for the overnight rate by one-quarter of
one percentage point to 1/2 per cent. As part of that interest rate decision, the Bank
re-established its normal operating framework for the implementation of monetary
policy.
 On Tuesday, 20 July 2010, the Bank raised its target for the overnight rate by a
further one-quarter of one percentage point to 3/4 per cent.
 These decisions leave considerable monetary stimulus in place, consistent with
achieving the 2 per cent inflation target in light of the significant excess supply in
Canada, the strength of domestic spending, and the uneven global recovery.

Given the considerable uncertainty surrounding the outlook, any further reduction of
monetary stimulus would have to be weighed carefully against domestic and global
economic developments.
With that, Tiff and I would be pleased to take your questions.