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, 18 january 2012. * * * good morning. tiff and i are pleased to be here with you today to discuss the january monetary policy report, which the bank published this morning. the outlook for the global economy has deteriorated and uncertainty has increased since the bank released its october mpr. the sovereign debt crisis in europe has intensified, conditions in international financial markets have tightened, and risk aversion has risen. the recession in europe is now expected to be deeper and longer than previously anticipated. the bank continues to assume that european authorities will implement sufficient measures to contain the crisis, although this assumption is clearly subject to downside risks. in the united states, the rebound in real gdp during the second half of 2011 was stronger than anticipated. however, the bank expects the recovery will proceed at a more modest pace going forward, owing to ongoing household deleveraging, fiscal consolidation and the spillovers from europe. chinese growth is decelerating, as expected, toward a more sustainable pace. prices for most commodities are expected to remain relatively elevated, although at levels below those anticipated in october. the bank ’ s overall outlook for the canadian economy is little changed from october. while there was more momentum than anticipated in the second half of 2011, the pace of growth going forward is expected to be more modest than previously envisaged, largely due to the external environment. household spending is now projected to grow at a steady pace through 2013. reflecting an upwardly - revised profile for residential investment, household expenditures are now expected to remain high relative to gdp over the projection horizon and the ratio of household debt to income is projected to rise further. while dampened somewhat by the external environment, business investment is expected to grow at a solid pace. net exports are expected to contribute little to growth, reflecting moderate foreign demand and ongoing competitiveness challenges, including the persistent strength of the canadian dollar. the bank estimates that the canadian economy grew by 2. 4 per cent in 2011 and projects that it will grow by 2. 0 per cent in 2012 and 2. 8 per cent in 2013. while the economy appears to be operating with less slack than previously assumed, given the more modest growth profile, it is only anticipated to return to full capacity by the third quarter of 2013. the dynamics for inflation are similar to

implications of financial stability tasks on central bank governance, bis ( 2009 ) underlines the need for effective governance arrangements that should be designed to deliver sustainable conduct of monetary policy functions in combination with the additional mandate to contribute to financial stability. further, the report stresses the importance of clarity with respect to financial stability responsibilities, policy transparency as to promote accountability, full autonomy to safeguard against political pressures and undue influence from business and industry and close collaboration with other regulators in the country. another important aspect is the central bank balance sheet which should be sound enough with strengthened risk - bearing capacity to enable successful implementation of monetary policy and support financial stability in case of emergency. going back to banking supervision, besides the institutional setup, another important question raised by the crisis relates to the role of transparency and accountability in promoting more effective banking supervision. according to the literature, for supervision to be considered effective it should be able to effectively develop, implement, monitor and enforce supervisory policies under normal and stressed economic conditions. bis ( 2012 ) defines several preconditions for effective supervision in practice : 1 ) sound and sustainable macroeconomic policies as a core precondition for stable financial system ; 2 ) a well established framework for financial stability policy formulation i. e. clear framework for macro prudential surveillance and financial stability policy formulation ; 3 ) proper regulatory environment ; 4 ) a clear framework for crisis management, recovery and resolution ; 5 ) an appropriate level of systemic protection ( or public safety net ) such is a system of deposit insurance which contributes to public confidence in the system and thus limit contagion from banks in distress and 6 ) effective market discipline. transparency is another factor that gains growing importance in recent years. thus, in order to restore confidence and rebuild financial stability there was a strong push towards supervisors to increase their transparency to the markets and the public. one supporting argument for these trends is the role of transparency as prerequisite for accountability. higher transparency enhances the legitimacy of the supervisor, also safeguarding his independence. when transparent, the supervisory actions become more predictable thus helping to shape expectations and foster linkages across institutions and markets. finally, transparency sets the ground for careful and consistent decision - making, reducing the scope for arbitrary decisions. empirical research ( arnone et al., 2007 ), finds a positive correlation between the transparency of the supervisor and the effectiveness of banking supervision. they also report higher transparency of banking supervision ( based on adherence to the imf code ) in industrial countries than in emerging economies.