Feb 12 Below are key quotes from an appearance by Bank of Canada Governor Mark Carney and Senior Deputy Governor Tiff Macklem:
CARNEY ON TRANSITION TO NEXT GOVERNOR:
"My commitment to the board, to this committee, to Canadians, is to ensure there is a seamless transition to the next governor ... my intention is to serve to June 1. The ideal obviously will be that there is a short transition, not too long, but there is a short overlap to assist that individual in taking charge and I'm highly confident that the institution will be well served by the next governor, whoever he or she is."
CARNEY ON JAPAN'S MONETARY POLICY:
"Since our last (Monetary Policy Report) there has been a major shift in the policy stance in Japan. There's a fiscal expansion of a little more than 2 percentage points and they have moved to a 2 percent inflation target. The monetary policy framework previously was a less-than-2-percent inflation target. There has been some concern that associated with those major very positive developments in macro policy that Japanese authorities were targeting a certain level of the exchange rate. There have been discussions at the G7 about this. I'm sure there will discussions this weekend at the G20 ..."
"The crucial point that we make here in Canada, and the Japanese authorities have agreed to acknowledge, is that monetary policy is focused on domestic outcomes, so if you're focusing on the 2 percent inflation target, you're targeting that domestic outcome, not the exchange rate. That said, monetary policy has consequences for the exchange rate, all other things being equal. And if monetary policy is looser, more accommodative than it was previously ... as it is in Japan given that they have raised the target for inflation materially, that will have consequences for the exchange rate. But the important thing is to stay focused on the medium term."
CARNEY ON PICKUP IN BUSINESS INVESTMENT AND BOC FORECASTS:
"What matters really for our forecast, is that we're going to have to see a pick up in business investment and we'll have to start seeing some penetration on those export margins. If we don't get that for whatever reason, our forecast is going to be too high. So we need to do as good a job as (possible) highlighting the key elements of the forecast to this committee and to Canadians so people can make their own judgments."
CARNEY ON DISAPPOINTING BUSINESS INVESTMENT:
"In recent months actually, investment has disappointed in the second half of last year. Now we think there's some special factors, particularly some engineering works, some issues in offshore Newfoundland, and in Alberta as well."
CARNEY ON SIGNS OF RETURN TO SOLID INVESTMENT GROWTH:
"Part of this is uncertainty given the U.S. and European situation. That's dissipating a bit. And those, the sum of those, are one of the reasons why we expect a pick up and I think by the time, if we are here and I hope we are going to be here, in April with our next MPR (Monetary Policy Report), I think we should be able to point to some signs of a return to solid business investment growth by that point."
CARNEY ON CANADA'S UNEMPLOYMENT RATE:
"From a monetary policy perspective, if I may add, what we look at as well, we do still see slack in the labor market. The unemployment rate is 7 percent, so it's come down, but it's still higher than we would see consistent with full employment."
CARNEY ON SLACK IN THE LABOR MARKET:
"From an inflation perspective, from monetary policy perspective, we do see slack, it's an odd word to use, but slack in the labor market which is consistent with the maintenance of very accommodative monetary policy for some time."
"It is still considerable. It is consistent with substantial monetary policy stimulus. It's one of the reasons why interest rates are at 1 percent even though our financial sector is firing on all cylinders and we have other issues on household debt and other things."
CARNEY ON FACTORS DRIVING THE CANADIAN DOLLAR:
"There are a variety of factors that drive our currency. Yes, it's the terms of trade. But it's also our better fiscal position, monetary policy credibility, we're a safe haven, the strength of our banking sector. And it has to be said as well, there has been in recent years an understandable generalized weakness in the U.S. dollar and a diversification of currencies internationally out of the U.S. dollar, out of euro. There are relatively few other places to go."
CARNEY ON STRONG CANADIAN DOLLAR:
"...That we focus on the things which we can control, which is the trade agenda, making the country more productive ... In that regard, a strong exchange rate is to our advantage, because we import most of our machinery, equipment and ICT (information and communications technology).
CARNEY ON IMPACT OF HIGHER COMMODITY PRICES:
"In only rare occasions do an increase in commodity prices not benefit the Canadian economy ... (the) U.S. is not pricing commodities these days, Asia is pricing commodities if you had to pick a region. Our economy is less oriented to Asia. An increase in commodity prices, to put a rough figure on it, that's driven by the U.S. is about 3 times as positive for Canada as one driven by Asia. But an increase in commodity prices driven by Asia is still materially positive for the Canadian economy, despite the fact it also encourages, all things being equal, a rise in our exchange rate."
CARNEY ON GROUP OF SEVEN STATEMENT:
"What we can do, and we released a statement, we signed a statement, the minister of finance and I this morning, of the G7, which reaffirmed the commitment of the G7 to ensure that monetary policy is focused on domestic objectives, not on targeting exchange rates. And we hold the members of the G7 to that long-standing position."
"It is extremely important, it's important that we as a G7 go in united and forcefully to the G20 to enlarge that commitment as quickly as possible amongst the major emerging economies in the G20, some of whom entirely ascribe to flexible exchange rates and are supportive, others who have a lot of work to do in this regard. Because in part it's a dysfunctionality of the international monetary system that causes that."
CARNEY ON BUSINESS HIRING:
"Our sense of surveys of businesses, is that they continue to intend to hire. So it's still a positive outlook for employment as a whole. That said, we have just under 20 percent of our unemployed who are long term unemployed. And the unemployment rate, while 'only 7 percent' relative to other economies, is still higher than we need. So the issue is one of mismatch, and you see it most directly in the skilled trades in Alberta."
CARNEY ON DISCOUNT FOR CANADIAN OIL:
"This is ultimately an issue of pipeline and refining capacity. It is not our view ... that this is an issue of deficient U.S. demand."
CARNEY ON CANADIAN HOUSEHOLD DEBT:
"We expect the household debt (to income) ratio to stabilize around current levels. So it's a reasonable prospect that this year and in the coming quarters actually we will see a stabilization of the household debt ratio. And obviously we're watching this very closely, you're watching this closely. And this is one of the reasons why we see a more, quote, constructive evolution of the imbalances in the household sector and have adjusted our guidance on interest rates."
CARNEY ON PROGRESS IN REDUCING GLOBAL TAIL RISKS TO ECONOMY:
"There have been some very large so-called tail risks in the global economy. The risks around the euro, the risks around the fiscal cliff, which you mentioned. There has been substantial progress in reducing those tail risks. So even though we now expect the European recession to last longer, Europe is in a better place today than they were in October."
CARNEY ON U.S. GROWTH AND IMPLICATIONS FOR CANADA:
"Even though U.S. growth has been marked down and it may actually be lower than we expect depending on the outcome of the current budget negotiations, debt ceiling negotiations in the U.S., the quality of U.S. growth is better, because what's supporting U.S. growth right now is better quality activity in the household sector, in the housing market, the start on corporate investments. The sustainability of the position is better and so over the medium term, this augurs well for Canada."
CARNEY ON 2012 GDP GROWTH:
"The shortfall is two-fold through 2012. Growth was less than anticipated, we think it's coming in under 2 percent. Also, GDP inflation was lower as well, so nominal GDP growth was materially less."
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