Mark Carney: Summary of the latest Monetary Policy Report
Opening statement by Mr Mark Carney, Governor of the Bank of Canada, at a press
conference following the release of the Monetary Policy Report, Ottawa, 24 April 2008.
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Today, we released our April Monetary Policy Report, which discusses current economic and
financial trends in the context of Canada's inflation-control strategy.
Monetary Policy Report
Growth in the global economy has weakened since the January
Update, reflecting the effects of a sharp slowdown in the U.S. economy and ongoing
dislocations in global financial markets. Growth in the Canadian economy has also
moderated. Buoyant growth in domestic demand, supported by high employment levels and
improved terms of trade, has been substantially offset by a fall in net exports. Both total and
core CPI inflation were running at about 1.5 per cent at the end of the first quarter, but the
underlying trend of inflation is judged to be about 2 per cent, consistent with an economy that
is running just above its production capacity.
The U.S. economic slowdown is projected to be deeper and more protracted than in the
January Update. The projection reflects a more pronounced impact on consumer spending of
the contraction in the U.S. housing market and significantly tighter credit conditions.
The deterioration in economic and financial conditions in the United States will have direct
consequences for the Canadian economy. First, exports are projected to decline, exerting a
significant drag on growth in 2008. Second, turbulence in global financial markets will
continue to affect the cost and availability of credit. Third, business and consumer sentiment
in Canada is expected to soften somewhat. Nevertheless, domestic demand is projected to
remain strong, supported by firm commodity prices, high employment levels, and the effect of
cumulative easing in monetary policy.
The Bank projects that the Canadian economy will grow by 1.4 per cent this year, 2.4 per
cent in 2009, and 3.3 per cent in 2010. The emergence of excess supply in the economy
should keep inflation below 2 per cent through 2009. Both core and total inflation are
projected to move up to 2 per cent in 2010 as the economy moves back into balance. There
are both upside and downside risks to the Bank's new projection for inflation; these risks
appear to be balanced.
In line with this outlook, some further monetary stimulus will likely be required to achieve the
inflation target over the medium term. Given the cumulative reduction in the target for the
overnight rate of 150 basis points since December, including the 50-basis-point reduction
announced on 22 April, the timing of any further monetary stimulus will depend on the
evolution of the global economy and domestic demand, and their impact on inflation in
Canada.