HIGHLIGHTS-Bank of Canada's Carney speaks in Ottawa

April 18 Wed Apr 18, 2012 12:40pm EDT

April 18 (Reuters) - Below are key quotes from Bank of Canada Governor Mark Carney's press conference in Ottawa:

ON THE LINK BETWEEN OIL AND THE C$:

"It is far too simplistic to talk about the Canadian dollar as a commodity currency, let alone a currency that moves consistent with one commodity. And to trade or to invest in the currency along those lines, ultimately over the medium term, it's going to be a recipe for losing money. So this is a much more diverse, complex economy than that and this is one manifestation of it. We're not going to give advice on how people should trade in the markets, but it's important to point out the underlying dynamics that are here today."

ON DEALING WITH THE HOUSING MARKET:

"Monetary policy is not the first line of defense here. It's not the second, it's not the third - it's the last line of defense. It's a blunt instrument, so to try to target it into this specific issue is not where one goes first. A number of measures have been taken by authorities and they include: moving up the capital ratios of the banks faster than virtually everyone else in the world, the Superintendent has done that. Tightening the mortgage underwriting standards, the HELOC underwriting standards. Three separate tightenings of mortgage insurance standards ... the last thing I'll say is just to reassure what you would expect, is that the officials from the Superintendent to the Bank of Canada, to the government of Canada are cooperating very closely on this issue. We will each, within our own responsibilities, take appropriate actions as needed."

ON CHINA'S MOVE TO WIDEN YUAN BAND:

"We take note of the announcement by the People's Bank on this past Friday to widen the band. It creates the possibility of additional flexibility in the currency so it's a step, but we would like to see additional flexibility in the currency. There's also a commitment as part of the G20 process of Chinese authorities to slow the pace of reserve accumulation and we'd like to see progress on that. Not changes in the level of reserve accumulation because of valuation effects, but actually slowing the pace of reserve accumulation. Both of those factors we'll see in the actual market over time, so we take note of it and we look forward to meeting with them over the course of the next few days and hearing more about what's actually going to happen."

ON REPORT OF BANK OF ENGLAND APPROACH:

"I'll repeat what I said, that reports are not accurate. On the second one, I'm absolutely focused on doing my roles and the most important of which is as Governor of the Bank of Canada. It's a tremendous responsibility, it's an honor to have this position and I intend to fulfill it."

ON IMPACT OF HIGHER OIL PRICES:

"It's marginally negative, we're talking 0.1 or so off growth in 2012 and we expect as we go over the projection horizon some of these differentials are going to narrow."

"All of that said, taking all of that into account, we expect the Canadian economy to grow above trend this year and next, 2.4 percent on an annual average basis this year and 2013, and so we've taken it into account, but the economy has some momentum, in our judgment."

ON THE EUROPEAN CRISIS:

"The European authorities have considerable resources in place right now. They have considerable commitments of the major affected economies on the fiscal side, on the structural reform side, and it depends how well those are implemented. These judgments should be taken in the context of yes, partially preventative, but also in the context of what is likely to happen and that will be part of the discussion that we have over the next few days, and I suspect over the course of coming months and potentially years. The situation in Europe, it's contained at present and Europeans have made important strides in helping to contain that. But it is still the biggest downside risk, external downside risk, to even the Canadian economy which is relatively detached from Europe and so that will likely be the case for some time. It is not like we will have a discussion in the next few days and then we'll put Europe to one side. I would love that to be the case, but I think we have to be realistic about it."

ON IMF AID:

"As the president of the World Bank quite eloquently outlined yesterday in his op-ed ... solving the issues in Europe is not about a firewall, it's about decisions that will be taken in Europe over a sustained period of time and it's European actions that will be decisive here as opposed to outside money. Finally I'd underscore that the IMF is there to serve all of its constituent members, not just one continent."

ON EXPORTS:

"Looking at the challenges that Canadian exporters face, yes there are challenges of competitiveness to which the persistent strength of the Canadian dollar has contributed unquestionably. Our view is that those are best addressed by enhancing productivity, reducing labor costs and finding new markets because actually the bigger contributor based on our analysis which I detailed a few weeks ago  the bigger contributor to the relatively poor export performance of Canadian firms has been market structure, to who we sell. We're locked into slow growing markets. More than 85 percent of our exports go to slow growing economies..."

ON HOME EQUITY LINES OF CREDIT:

"Like any financial innovation home equity lines of credit, which have come to the fore over the last decade, have both positives and negatives associated with them. Obviously home equity lines of credit can be used to refinance relatively expensive credit card debt at much lower rates. The issue, as with any debt, is if this access to debt is taken too far in individual circumstances, or in aggregate across the Canadian economy. What we have seen in aggregate across the Canadian economy has been a sharp increase in the usage of home equity lines of credit, some of which have taken place in a context of underwriting standards that are less than optimal. And guidance has been given to financial institutions on that in recent weeks by the superintendent. More broadly, it's part of the bigger picture of driving Canadian household debt levels to record levels and levels that we see over the course of our projection continuing to rise. There are good aspects of it, but it contributes to a broader issue where some Canadian households are becoming over stretched and Canadian households as a whole are being over stretched which creates risk for the economy."

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