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 Update, Ottawa, 22 January
2009.
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Good morning. We are pleased to be here with you today to discuss the January Monetary
Policy Report
Update, which we published this morning.
The outlook for the global economy has deteriorated since the October Monetary Policy
Report, with the intensifying financial crisis spilling over into real economic activity.
Heightened uncertainty is undermining business and household confidence worldwide and
further eroding domestic demand. Major advanced economies, including Canada's, are now
in recession, and emerging-market economies are increasingly affected. Commodity prices -
especially energy prices - have fallen as a result of substantially weaker global demand.
Stabilization of the global financial system is a precondition for economic recovery. To that
end, governments and central banks are taking bold and concerted policy actions. There are
signs that these extraordinary measures are starting to gain traction, although it will take
some time for financial conditions to normalize. In addition, considerable monetary and fiscal
policy stimulus is being provided worldwide.
Canadian exports are down sharply, and domestic demand is shrinking as a result of
declines in real income, household wealth, and confidence. Canada's economy is projected
to contract through mid-2009, with real GDP dropping by 1.2 per cent this year on an annual
average basis. As policy actions begin to take hold in Canada and globally, and with support
from the past depreciation of the Canadian dollar, real GDP is expected to rebound, growing
by 3.8 per cent in 2010.
A wider output gap through 2009 and modest decreases in housing prices should cause core
CPI inflation to ease, bottoming at 1.1 per cent in the fourth quarter. Total CPI inflation is
expected to dip below zero for two quarters in 2009, reflecting year-on-year drops in energy
prices. With inflation expectations well-anchored, total and core inflation should return to the
2 per cent target in the first half of 2011 as the economy returns to potential.
Global developments pose significant upside and downside risks to the inflation projection.
On the upside, the global economy could be stronger, if global fiscal stimulus turns out to be
more expansionary than expected, or if aggressive policy actions taken across major
economies restore confidence more quickly than projected. On the downside, the global
recession could be deeper and more protracted because financial conditions take longer to
normalize. The Bank judges that these risks are roughly balanced.
Against this background, the Bank lowered its policy rate by 50 basis points on Tuesday to 1
per cent, bringing the cumulative monetary policy easing to 350 basis points since December
2007. Guided by Canada's inflation-targeting framework, we will continue to monitor carefully
economic and financial developments in judging to what extent further monetary stimulus will
be required to achieve the 2 per cent target over the medium term. Low, stable, and
predictable inflation is the best contribution monetary policy can make to long-term economic
growth and financial stability.