* Housing market "accelerating" in right direction
* Housing starts still unusually high
* Economy running at close to potential
* G20 global growth plan needs revamp after slippage
By Jonathan Spicer
NEW YORK, Nov 27 Canada's heated housing market
appears to be cooling as desired, a senior Bank of Canada
official said on Tuesday, although he noted that housing starts
remain unusually high.
Housing prices and construction in Canada roared higher in
2011 amid low interest rates, sparking fears of a U.S.-style
bubble. The market started to slow after the government
tightened rules on mortgage lending in July, and policy makers
hope to see a gradual softening rather than a crash.
"It's still early days. But we're certainly seeing evidence
of movement and acceleration in the right direction," Murray
told a business audience after giving a speech in New York.
"Some sort of smooth transition, at least on the housing
side, is what we're looking for," he said.
He said the evidence on housing expenditures was "to a
degree encouraging" but cautioned that housing starts were still
higher than would be warranted by demographic trends.
Canadian home prices dipped in October from September and
year-over-year price gains slowed for the 11th straight month,
according to the latest in a string of data showing the market
is losing momentum.
But the central bank is mostly concerned about the
record-high levels of personal debt that accompanied the housing
boom and will likely take longer to subside.
The bank, which has kept its key interest rate frozen at 1
percent for the past two years, has signaled in recent weeks
that it could resort to increasing interest rates to bring down
household debt if other measures failed, straying temporarily
from its traditional inflation target if necessary.
Murray reiterated on Tuesday that the economy is running at
close to its full capacity, the other reason given by the bank
for the hawkish tone it has adopted since April.
"The Canadian economy ... is actually operating fairly close
to its capacity level," he said. "The best judgment of the
governing council ... is that the output gap is less than 1
percent - I think we gave an estimate of two-thirds of a
Canada's primary securities dealers surveyed by Reuters
expect the bank to raise its rate in the fourth quarter of 2013.
In his speech, Murray outlined the failings of the world's
major economies in implementing promises made three years ago to
restore global growth and urged them to agree on a modified plan
to get back on track, including gradual U.S. fiscal tightening.
"The deflationary forces in many countries appear to be
winning. While global growth has not stalled completely, neither
is it as strong or as widely distributed as many had hoped," he
The Group of 20 advanced and emerging economies in 2009
pledged a series of measures designed to balance their budgets,
reform banks and rebalance growth by boosting domestic demand in
China and reducing it in the United States.
Progress has been partial, Murray said, and new shocks since
then call for a revamped plan.
A new priority of that plan should be to avoid going
overboard with austerity measures, he said.
"In other words, don't overdo it in the short run, since the
fiscal multipliers are believed to be much larger than
previously estimated. That said, there is a need for some
countries, most notably Japan and the United States, to set out
credible longer-term paths to restore their fiscal health," he
Second, Europe needs to finish the work to contain its
crisis. Finally, surplus countries - namely China - should speed
up their move toward market-determined exchange rates to boost
domestic consumption, he said.