UPDATE 2-Bank of Canada's Carney won't cram in moves before exit
* Carney repeats that rate hikes likely needed
* Sees softness in economy; positive signs in housing, debt
* Says policy guidance is never a promise
By Solarina Ho and John Tilak
TORONTO, Dec 11 (Reuters) - Bank of Canada Governor Mark Carney, who has signaled for months that the central bank's next interest rate move will be an increase, said on Tuesday he won't rush through any policy decisions before he leaves in June to head the Bank of England.
After his first speech since his surprise appointment as BoE governor, Carney was asked if he would leave the nagging problem of soaring household debt for his successor to deal with.
"What would be entirely wrong is to manage policy to my horizons as opposed to the right horizons to have, the optimal policy horizons. We're not going to try to cram a bunch of decisions into the next six months," he said.
Carney repeated the bank's hawkish line that it will likely need to raise rates, making it an outlier among developed countries' central banks, which are more concerned about stimulating growth.
Markets don't expect a rate move before late 2013.
But Carney has also hinted at a less conventional use of monetary policy that could alter that timetable: hiking rates to specifically target excess household debt and the heated housing market.
He has promised to be transparent about the bank's goals if it were ever to resort to such a move.
Targeting rates for that kind of use would be unusual for the inflation-targeting central bank but it fits within its mandate, which allows monetary policy to be used for financial stability purposes in some circumstances.
High household debt and a heated housing market remain the biggest domestic threats to Canada's financial system, the bank said last week.
"In current circumstances, the bank may want to set interest rates higher than would otherwise be warranted to bring inflation back to target within the typical six- to eight-quarter time frame," Carney said in the prepared text of a speech he was giving in Toronto.
Carney said he was cautiously encouraged by some cooling in the housing market and said households had become more prudent in their borrowing, in part because of the bank's "tightening bias". The share of new fixed-rate mortgages in Canada has almost doubled this year to 90 percent.
He also acknowledged some unanticipated softness in the economy, although he gave no indication that it would skew the bank's outlook substantially.
"Just the simple math of it is that the third quarter was slightly slower (than forecast)... (The output gap) would be slightly larger, but this on margin," he said.
"That said, the momentum is somewhat softer as we signaled in our December rate decision, and recent data is consistent with a bit more softness that is there."
Some temporary factors such as oil production disruptions will pass through by the fourth quarter and first quarter of next year, he said.
GUIDANCE NEVER A PROMISE
Carney's speech centered on the usefulness of policy guidance from the central bank. The bank would give markets an explicit heads-up if it were ever to use monetary policy to lean against the heated real estate market, he said.
Carney is generally opposed to spoon-feeding market players with clues on interest rate intentions except in extraordinary circumstances.
His guidance analysis came after he confused markets in October with less-than-clear statements, leading some to believe the bank had hardened its rate-hike view when, in fact, it was trying to say that rate increases were "less imminent."
A better approach is to be transparent in what economic factors the bank takes into account when setting rates, rather than using stock phrases or code words that markets come to rely on for guidance, he said.
"This guidance is never a promise, however. Actual policy will always respond to the economic and financial outlook as it evolves. Market expectations should do the same, reflecting differences in perspectives amid a common understanding our objective," he said.
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