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
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
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