(Corrects year of 2.2 percent growth to 2012 (not 2013);
clarifies consumer spending growth estimate revised (not
* Carney says new language means rate hike less imminent
* Third quarter growth forecast cut to 1.0 percent from 2.0
* BoC sees more slack in economy than previously thought
* Data revisions imply household sector more vulnerable
By Louise Egan and Randall Palmer
OTTAWA, Oct 24 The Bank of Canada is likely to
raise interest rates later than it once thought, Governor Mark
Carney said on Wednesday, citing weak third-quarter growth and
more slack in the economy.
"The case for adjustment of interest rates has become less
imminent," he said, explaining Tuesday's change in the central
bank's language to say a withdrawal of monetary policy stimulus
was only likely "over time."
Carney added the caveat: "But it is important to recognize
... that over time rates are more likely to go up than not."
In holding the overnight rate at 1 percent on Tuesday, the
bank said it was still tilting toward rate hikes, but its
language initially caused some confusion as to whether it was
more hawkish or less. Carney made clear it was more dovish.
He was addressing reporters after presenting the quarterly
Monetary Policy Report, which halved the forecast for growth in
the third quarter to an annualized 1.0 percent and said the
degree of slack in the economy had widened to two-thirds of a
percent from about half a percent in the second quarter.
Canada recovered more quickly from the global financial
crisis than other major economies and its central bank is the
only one in the Group of Seven major industrial nations that is
signaling an intention to raise interest rates amid expectations
the economy will continue to expand moderately.
The bank also said indebted households in Canada - a top
concern of policymakers - may be more vulnerable than it had
The revised third-quarter growth estimate was based partly
on temporary disruptions in the oil sector, and the bank painted
a brighter picture of the following two quarters. It forecast
average growth of more than 2 percent through 2014 as foreign
demand for Canadian exports recovers.
"The bank expects growth in the Canadian economy to pick up
in coming quarters to a somewhat faster pace than that of its
production potential," the report said.
The bank also said recent historical revisions to the
household debt-to-income ratio, raising it to 161 percent,
implied "a more vulnerable household sector than previously
It saw signs of overbuilding in the housing sector despite a
decline in housing investment in the second and third quarters.
But the bank also said consumers may be starting to become
more cautious because of their heavy debt loads, and tighter
mortgage rules introduced in June were expected to contribute to
a more sustainable housing market.
Consumption and business investment will be the main drivers
of growth between now and the end of 2014, the bank said.
It sees consumer spending growing by 1.0 percent this year,
down from 1.1 percent in its July forecast, and 1.2 percent next
year, unchanged from July.
Business investment will remain solid, although "somewhat
less robust" than it estimated in July, the bank said.
After the third-quarter trough, the bank sees growth
recovering to 2.5 percent in the fourth quarter of this year.
This year, the economy will expand by 2.2 percent, it
estimated, and said the forecast would have been for 1.9 percent
growth if not for major revisions in historical data in the
country's national accounts to bring the data in line with new
The bank expects growth of 2.3 percent next year and 2.4
percent in 2014.
It sees potential growth - the speed at which the economy
can grow without fueling inflation - at 2.0 percent this year,
2.1 percent in 2013 and 2.2 percent in 2014.
(Editing by Janet Guttsman, Peter Galloway and James Dalgleish)