September 23, 2020

BOC’s Carney: Inflation Expectations Remain Well Anchored

Dow Jones Newswires

WATERLOO, Ont. -(Dow Jones)- Expectations for inflation in Canada remain well anchored around the Bank of Canada’s 2% target, Governor Mark Carney said Monday.

“Our job is to achieve that 2% inflation and ensure to the extent to which Canadians are thinking about inflation, that their expectations are it will be centered around 2% over the medium- and long-term horizon,” Carney said in response to an audience question after a speech here.

Carney was speaking to the Kitchener-Waterloo Chamber of Commerce on the topic “Exporting in a Post-Crisis World.”

In response to another audience question, Carney said the Bank of Canada doesn’t target long-term interest rates, instead focusing on its target for the overnight rate.

“The interest rate we target is the overnight interest rate, and then the balance of rates are determined by the market,” Carney said.

All indicators point to inflation expectations remaining well anchored, he said.

Underlying inflation has been a little firmer recently than the Bank earlier anticipated because of higher energy prices and because there’s less slack in the economy than expected, Carney said during a news conference after the speech.

Stronger-than-expected growth has resulted in the amount of slack in the economy decreasing more than the bank foresaw, Carney said.

“Persistent strength” in the Canadian dollar has contributed to “headwinds” for Canadian exporters, Carney said.

“That reinforces the headwinds we’re getting from abroad in terms of the relative weakness of our main trading partners,” he said.

Canadian exporters need to find new markets as part of a sustainable export strategy, Carney said.

The Bank is assessing the economic impact of recently announced fiscal restraint at the federal and provincial levels and will release detailed estimates of their effects in its April 18 monetary policy report.

“I don’t have a point estimate for you right now because we really are working through the assessment right now,” Carney said.

“We’re encouraged by the measures that have been taken,” Carney said. “Those budgets help to maintain and reinforce the attractiveness of Canada as an investment destination,” Carney added.

The Bank isn’t anticipating a contraction in the economy and hasn’t seen anything in federal and provincial budgets which would cause that, Carney said.

Growth recently has been somewhat firmer than the Bank expected, he said.

Carney said the Bank is monitoring the status of Canada’s housing market and looking for sustainable levels of growth in the housing market as well as sustainable levels of borrowing.

“We’re taking all that into account and will continue to monitor the situation and take whatever action is appropriate to ensure inflation does reach its 2% [target] over the mid term,” Carney said.

Asked about possible measures to tighten oversight of Canada Mortgage & Housing Corp., an agency that insures mortgages and helps fund Canada’s mortgage market, Carney said that falls within the mandate of the federal government.

He said monetary policy is “the last line of defense” on the policy front in dealing with the issue of household debt, the biggest domestic risk to the economy, after supervision of financial institutions at the “microprudential level”, and “macroprudential” actions such as the earlier tightenings of mortgage rules by the federal government.

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