Dec 11 Below are key quotes from an appearance by Bank of Canada Governor Mark Carney in Toronto:
ON CLOSING THE OUTPUT GAP:
"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. 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 of the softness in Q3 related to some temporary factors that were pretty material in terms of ... some oil platforms and other production that's coming back on in Q4 or Q1."
ON FINANCIAL INSTITUTION MISCONDUCT:
"The wheels of justice move slowly and ... the events that are behind this settlement (between HSBC and U.S. authorities over money-laundering) happened a while ago and that measures certainly have been taken in my understanding within that institution to significantly tighten control for this and other aspects. Similarly, the Libor issues and the conduct around the setting of reference rates, there has been progress in my understanding. We don't enforce this as the Bank of Canada. It's really a market conduct issue for market conduct regulators."
ON FLEXIBLE INFLATION TARGETING:
"(One of the strengths of the Bank of Canada is) ... the power of the flexible inflation targeting framework that we and many others practice and its suitability for these times, for both normal times and times of crisis. But in order to get the most benefit from that framework, transparency, communications is absolutely crucial. And there are ways to use communications to potentially amplify that power in extraordinary circumstances which may be appropriate in some jurisdictions, not appropriate in other jurisdictions, and one has to explain it. So those are general lessons which are not necessarily directly applicable to the Bank of England."
ON MANAGING POLICY FOR REMAINDER OF TERM
"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."
ON CANADIAN HOUSING DATA
"We've seen (housing) starts coming down. They're now down around where we see household formation. We're seeing some over-building still in condos and we've been pretty clear about that. We have seen the pace of household debt accumulation slow as hoped for, as intended, from about 10 percent to just a bit more than 4 percent. We'll see if that persists, but that's positive."
"I would just caution that we have seen in the past when there have been policy measures taken, movement in these variables that are then followed by a re-acceleration. And I've not necessarily seen anything that would be consistent with that, but we just have to be vigilant - the collective we have to be vigilant about these aspects and adjust to that if there were clear signs of re-acceleration. So we're somewhat encouraged by what we are seeing."
ON IMPLICATIONS OF SPEECH FOR BANK OF ENGLAND
"That's not signaling anything, that's not guidance. It's not only not guidance about the stance of monetary policy in Canada, it's certainly not the stance of monetary policy anywhere else."
ON COMMENTS ABOUT BANK OF ENGLAND
"My comments about the Bank of England are best first delivered to the Treasury Select Committee, given their role, and we're working with the committee right now to find a date in the new year that works for both of us."
ON LESSONS FROM FINANCIAL CRISIS
"The experiences of crisis management that we had here in Canada, much is made in Canada of 'we didn't have bank failures and we didn't have other issues'. Well, in part we didn't have those because we made tough decisions in a timely fashion. We were transparent ... about the scale of issues, including for example in the asset-backed paper market, which were considerable. The first thing is transparency. You have to level with people on the scale of problems, it does no good to try to spin your way out of a crisis. Secondly, the importance of having a plan, explaining that plan and executing that plan."
ON U.S. PATH TO BASEL III:
"What the U.S. is doing in fact is stress-testing its 19 largest banks, the large complex financial institutions in their vernacular. Now those 19 largest banks account for 90 percent of the banking assets in the United States and they are stress-testing them to Basel III standards, and an accelerated implementation of Basel III. So the facts on the ground are that the core of the U.S. banking system is built ... around $300 billion of capital, it is being stress-tested back to Basel III norms and so the core, not just the core but 90 percent of the U.S. financial system, is on a path to Basel III."
ON THE HOUSING MARKET
"We do have a view that there are some stretched valuations in the residential markets in some of our major cities."
"Because of the macro-prudential measures the government has taken, tightening mortgage insurance rules, because of the underwriting guidelines that OSFI (the Office of the Superintendent of Financial Institutions) has put in place, and we think a bit because of the tightening bias of the Bank of Canada, we're starting to see an adjustment in residential real estate."
"The signals are still a bit mixed, so I wouldn't declare mission accomplished by any stretch, but we are somewhat encouraged by the direction that we are seeing and the prospect of a more sustainable evolution in the path of housing in Canada is within sight."