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, 13 April 2011.
* * *
Good morning. Tiff and I are pleased to be here with you today to discuss the April Monetary
Policy Report, which the Bank published this morning.

As anticipated in January, the global economic recovery is becoming more firmly
entrenched and is expected to continue at a steady pace.
 In the United States, growth is solidifying, although consolidation of household and,
ultimately, government balance sheets will limit the pace of the expansion.
 European growth has strengthened, despite ongoing sovereign debt and banking
challenges in the periphery. The disasters that struck Japan in March will severely
affect its economic activity in the first half of this year. The resulting disruptions to
global supply chains are projected to reduce the growth in the Canadian economy in
this quarter by about half of a percentage point, with that lost activity likely to be
recovered in subsequent quarters.

Robust demand from emerging-market economies is driving the underlying strength
in commodity prices, which is being further reinforced by supply shocks arising from
recent geopolitical events. These price increases, combined with persistent excess
demand conditions in major EMEs, are contributing to broader global inflationary
pressures. Despite the significant challenges that weigh on the global outlook,
financial conditions remain very stimulative and investors have become noticeably
less risk averse.

In Canada, recent economic activity has been stronger than anticipated, although
the profile is largely consistent with the underlying dynamics outlined in January.
Aggregate demand is rebalancing toward business investment and net exports, and
away from government and household expenditures.

As in January, the Bank expects business investment to continue to rise rapidly and
the growth of consumer spending to evolve broadly in line with that of personal
disposable income, although higher terms of trade and wealth are likely to support a
slightly stronger profile for household expenditures than previously projected.

In contrast, the improvement in net exports is expected to be further restrained by
ongoing competitiveness challenges, including headwinds from the persistent
strength in the Canadian dollar.

Overall, the Bank projects that the economy will expand by 2.9 per cent in 2011 and
2.6 per cent in 2012. Growth in 2013 is expected to equal that of potential output, at
2.1 per cent. The Bank expects that the economy will return to capacity in the middle
of 2012, two quarters earlier than had been projected in January.

While underlying inflation is subdued, a number of temporary factors will boost total
CPI inflation to around 3 per cent in the second quarter of 2011 before total CPI
inflation converges to the 2 per cent target by the middle of 2012. This short-term
volatility reflects the impact of recent sharp increases in energy prices and the
ongoing boost from changes in provincial indirect taxes.

Core inflation has fallen further in recent months, in part due to temporary factors. It
is expected to rise gradually to 2 per cent by the middle of 2012 as excess supply in
the economy is slowly absorbed, labour compensation growth stays modest,
productivity recovers, and inflation expectations remain well-anchored.
 The persistent strength of the Canadian dollar could create even greater headwinds
for the Canadian economy, putting additional downward pressure on inflation
through weaker-than-expected net exports and larger declines in import prices.

An additional downside risk to inflation in Canada relates to household spending,
which could be weaker than projected, given high household debt levels. On the
upside, commodity prices and global inflation could rise faster than anticipated and
there could be stronger-than-expected momentum in household expenditures.
 Overall, the Bank judges the risks to the Canadian inflation outlook are roughly
balanced over the projection horizon.
 Reflecting all of these factors, the Bank decided yesterday to maintain 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
material excess supply 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.