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 October 2010.
* * *
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.

The global economic recovery is entering a new phase. In advanced economies,
temporary factors supporting growth in 2010, such as the inventory cycle and
pentup demand, have largely run their course and fiscal stimulus will shift to fiscal
consolidation over the projection horizon.

The Bank expects that private demand in advanced economies will become
sufficiently entrenched to sustain the recovery. However, the combination of difficult
labour market dynamics and ongoing deleveraging in many advanced economies is
expected to moderate the pace of growth, relative to prior expectations.

These factors will contribute to a weaker-than-projected recovery in the United
States in particular.

Growth in emerging-market economies is expected to ease to a more sustainable
pace as fiscal and monetary policies are tightened. Heightened tensions in currency
markets and related risks associated with global imbalances could result in a more
protracted and difficult global recovery.

The economic outlook for Canada has changed. The Bank expects the economic
recovery to be more gradual than it had projected in July, with growth of 3.0 per cent
in 2010, 2.3 per cent in 2011, and 2.6 per cent in 2012. This more modest growth
profile reflects a more gradual global recovery and a more subdued profile for
household spending.

Overall, the composition of demand in Canada is expected to shift away from
government and household expenditures towards business investment and net
exports. The strength of net exports will be sensitive to currency movements, the
expected recovery in productivity growth, and the prospects for external demand.

Inflation in Canada has been slightly below the Bank's July projection. The recent
moderation in core inflation is consistent with the persistence of significant excess
supply and a deceleration in the growth of unit labour costs.

The Bank judges that the output gap is slightly larger and that the economy will
return to full capacity by the end of 2012 rather than the beginning of that year, as
had been anticipated in July.

The inflation outlook has been revised down and both total CPI and core inflation
are now expected to converge to 2 per cent by the end of 2012, as excess supply in
the economy is gradually absorbed and inflation expectations remain well-anchored.

Important risks remain around this outlook. The three main upside risks to the
inflation outlook are higher commodity prices, a stronger-than-anticipated recovery
in the U.S. economy, and the possibility of greater-than-projected momentum in the
Canadian household sector.

These upside risks are balanced by three downside risks relating to Canada's
international competitiveness, global growth prospects, and the possibility of a more
pronounced correction in the Canadian housing market. These risks are balanced.

On 19 October 2010, the Bank maintained the target for the overnight rate at
1 per cent. This leaves considerable monetary stimulus in place, consistent with
achieving the 2 per cent inflation target in an environment of significant excess
supply in Canada.
 At this time of transition in the global recovery, with a weaker U.S. outlook,
constraints beginning to moderate growth in emerging-market economies, and
domestic considerations that are expected to slow consumption and housing activity
in Canada, any further reduction in monetary policy stimulus would need to be
carefully considered.
With that, Tiff and I would be pleased to take your questions.