Mark Carney: Summary of the latest Monetary Policy Report update
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, 21 January 2010.
* * *
Good Morning. Paul and I are pleased to be here with you today to discuss the January
Monetary Policy Report, which we published this morning.
•
The global economic recovery is underway. Economic and financial developments
have been slightly more favourable than we projected in October, and the outlook
for global economic growth through 2010 and 2011 is somewhat stronger.
•
Although the recession in Canada was severe, with real GDP contracting for three
consecutive quarters, the magnitude of the downturn was more modest than in other
major advanced economies. In particular, domestic demand held up much better in
Canada than elsewhere, reflecting the soundness of Canada's banking system,
relatively healthy household and corporate balance sheets, and the speed and scale
of monetary policy actions.
•
Economic growth in Canada resumed in the third quarter of 2009 and is expected to
have picked up further in the fourth quarter. Nevertheless, considerable excess
supply remains, and the Bank judges that the economy was operating about 3 1⁄4 per
cent below its production capacity in the fourth quarter of 2009.
•
In Canada, the recovery is expected to evolve largely as anticipated in October, with
the economy returning to full capacity in the third quarter of 2011. This recovery is
still expected to be more subdued than usual. The main factors supporting the
Canadian recovery are: monetary and fiscal policy support, increased confidence, a
firming global economy, and higher terms of trade.
•
At the same time, the persistent strength of the Canadian dollar and the low
absolute level of U.S. demand continue to act as significant drags on economic
activity.
•
For the year as a whole, the Canadian economy contracted by an estimated 2.5 per
cent in 2009. It is projected to grow by 2.9 per cent in 2010 and 3.5 per cent in 2011.
•
As a result of year-over-year increases in energy prices, total CPI inflation turned
positive in the fourth quarter of 2009, as had been anticipated.
•
In spite of the large amount of excess supply in the economy, the core rate of
inflation has been slightly stronger than expected in recent months. This stickiness
of core inflation is likely related to the fact that wage growth had remained high
relative to the underlying trend in productivity.
•
The core rate of inflation is projected to increase gradually, returning to 2 per cent in
the third quarter of 2011. Total CPI inflation is projected to follow a very similar path
and return to the 2 per cent target also in Q3 of next year.
•
The main upside risks to inflation are associated with the possibility of a stronger
than- anticipated global recovery and of Canadian domestic demand that is more
robust and has more momentum than projected.
•
On the downside, there is the risk that persistent strength of the Canadian dollar
could act as a significant further drag on growth and put additional downward
pressure on inflation. Another important downside risk is that the global recovery
could be even more protracted than projected.
•
On Tuesday, the Bank reaffirmed its conditional commitment to maintain its target
for the overnight rate at the effective lower bound of 1/4 per cent until the end of
June 2010 in order to achieve the inflation target.
•
The Bank retains considerable flexibility in its conduct of monetary policy at low
interest rates, consistent with the framework outlined in the April 2009 MPR.
With that, Paul and I would be pleased to take your questions.