HIGHLIGHTS-Bank of Canada's Carney speaks in Ottawa

Wed Oct 24, 2012 12:11pm EDT

Oct 24 (Reuters) - Below are key quotes from an appearance by Bank of Canada Governor Mark Carney in Ottawa:

ON INTEREST RATES

"The case for adjustment of interest rates has become less imminent. But it is important to recognize, for both Canadians and then the subset of Canadians that are market participants and then broader global market participants, that given the fact that the Canadian economy is operating with a very small output gap, given that we are in an expansion, not a recovery, which is relatively unique in advanced economies, and given our outlook for albeit moderate global growth, the implications of that for our terms of trade and the outlook for Canadian growth and including in all of this the potential evolution of imbalances in the household sector, that over time rates are more likely to go up than not."

ON WHETHER CANADA IS AT TIPPING POINT BECAUSE OF HIGH HOUSEHOLD DEBT:

"We don't think that. That's certainly not our base case. Our expectation is exactly what you said. There will be this gradual adjustment in the pace of accumulation of household debt. That's one of the things that impact both the level of activity in the housing market and consumer expenditure. And that this adjustment will proceed in part, because of the measures that have been taken. That is our base case. There is obviously a risk that the adjustments could be more severe. We've outlined clearly that that is a risk. But that is not our expectation."

ON CHALLENGE OF LOW INTEREST RATE VS HOUSEHOLD DEBT:

"Without question it's a challenge. Because of global headwinds, there is a need to provide stimulative monetary policy in Canada, to encourage business investment and to encourage household borrowing for those households who can afford to borrow and afford to borrow over the long cycle of interest rates and also to take into account global pressure."

"One of the consequences of that, are these risks around household debt and ... the first best response to that is to use other instruments in order to ensure that a subset of Canadians does not take the current situation and get themselves over-extended and effectively into trouble."

ON MONETARY POLICY GUIDANCE:

"To draw more precision out of it than that is false precision at this stage because there's a number of factors. The world is a big uncertain place. There's lots of volatility there. We discussed at some length the situation in the household sector which as I say has some mixed signals on where the adjustment is going and there's always events in economies and we're going to adjust accordingly."

ON MEASURES TAKEN BY EUROPE:

"In terms of containment of the crisis in Europe, the measures taken by particularly the European Central Bank with the OMT (Outright Monetary Transactions) program, some other measures taken by European authorities, have reinforced the probability that the crisis will be contained."

ON CHINESE GROWTH:

"We had expected a relatively marked slowdown in China. The question was where growth was going to stabilize, at what level growth was going to stabilize. I don't want to overplay it but there are some signs of growth stabilizing at these levels."

ON THREAT OF U.S. FISCAL CLIFF:

"We're no wiser on the fiscal cliff than anybody else. The real negotiation discussion of this will start after the U.S. election. It is a major issue. If mishandled, the U.S. will be pushed back into recession. I think the parties know that."

ON FOREIGN INVESTMENT:

"Canada is an attractive investment destination. And our challenge is how we use that capital which comes into Canada and how we channel it most productively. I wouldn't overplay the investment story."

ON LIBOR AND REVIEWS OF REFERENCE RATES:

"Probably, over time, I would expect that, and these are decisions for market participants, adjustment in terms of the reference rates that participants use and how they use them."

ON HOUSEHOLD DEBT:

"The measures that the government has taken has been both prudent and timely. The cumulative effect of those measures has not been fully been felt. So we with others are monitoring the impact of those steps."

"Monetary policy can play a complementary role, it's not the first mover in any of this. I would emphasize that our view on the risks in the household sector, writ large, that those risks are very much to both sides, given the stretched position in both the housing market and some household balance sheets. And we're monitoring the situation closely and we'll adjust.

ON HOUSING MARKET:

"There are signs of softening in the housing market. We see that in resales, for example in some valuation adjustments  but at the same time, on the upside, housing starts remain above demographic demand, or household formation said a different way. So there are mixed signals."

ON USING MONETARY POLICY TO ADDRESS HOUSING MARKET:

"As you know the government has taken steps on four different occasions to tighten mortgage insurance rules. We think those measures are having an impact and in conjunction with the measures that have been taken with OSFI (Office of the Superintendent of Financial Institutions), we along with other federal authorities are watching the situation closely, monitoring the situation closely ... What we've tried to be clear about, not just in this monetary policy report but in prior communication speeches and in fact in our inflation control renewal document at the end of last year, is that monetary policy if it has a role to address these issues is the last line of defense."