Mark Carney: Summary Canada's 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, 22 October 2009.
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Good morning. Paul and I are pleased to be here with you today to discuss the October
Monetary Policy Report, which we published this morning.
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Recent indicators point to the start of a global recovery. Economic and financial
developments have been somewhat more favourable than we expected in July,
although significant fragilities remain.
•
In Canada, as expected, a recovery in economic activity is also under way, following
three consecutive quarters of sharp contraction.
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This resumption of growth is supported by monetary and fiscal stimulus, increased
household wealth, improving financial conditions, higher commodity prices, and
stronger business and consumer confidence.
•
However, heightened volatility and persistent strength in the Canadian dollar are
working to slow growth and subdue inflation pressures. The current strength in the
dollar is expected, over time, to more than fully offset the favourable developments
since July.
•
Given all these factors, the Bank now projects that, relative to our July Report, the
composition of aggregate demand will shift further towards final domestic demand
and away from net exports. We now expect growth to average slightly lower over the
balance of the projection period.
• The Bank projects that the Canadian economy will contract by 2.4 per cent this year
and then grow by 3.0 per cent in 2010 and 3.3 per cent in 2011. This projected
recovery will be somewhat more modest than the average of previous cycles.
•
Total CPI inflation declined to a trough of -0.9 per cent in the third quarter, reflecting
large year-on-year drops in energy prices. Total CPI inflation should rise to 1.0 per
cent this quarter, while the core rate of inflation is projected to reach its trough of 1.4
per cent during the same period.
• Owing to the substantial excess supply that has emerged in the economy, the Bank
expects both core and total inflation to return to the 2 per cent target in the third
quarter of 2011, one quarter later than we projected in July.
•
The main upside risks to inflation relate to the possibility of a
stronger-thananticipated recovery in the global economy and more robust Canadian domestic
demand.
•
On the downside, a stronger-than-assumed Canadian dollar, driven by global
portfolio movements out of U.S.-dollar assets, 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 the conduct of monetary policy at low
interest rates, consistent with the framework that we outlined in the April MPR.