* Mark Carney says rate hikes might be coming
* Says domestic, global risks must be weighed
* Bank wary about drastic measures to curb debt
By David Ljunggren
OTTAWA, April 24 Bank of Canada Governor Mark
Carney repeated on Tuesday that the central bank might have to
increase interest rates and he continued to fret about the high
levels of debt that Canadians are taking on.
Carney used an appearance at the House of Commons finance
committee to stress the central bank's recent message that rates
could have to go up despite global economic uncertainty.
"We have noted that given the state of the (Canadian)
economy, the amount of slack, firmer underlying inflation, that
it may become appropriate to withdraw some of the considerable
monetary policy stimulus," Carney told the committee.
"But any such decision would be taken with care and careful
consideration of domestic and global risks. There's a few clear
The central bank, which has kept rates at a near-record low
of 1 percent since September 2010, surprised markets last week
when it explicitly mentioned that a rate increase might be
needed because of a stronger economy and underlying inflationary
The cheap money has encouraged Canadians to borrow more
heavily, particularly against the equity in their homes,
prompting repeated alerts from the bank about po ssible
calamitous consequences onc e rates start to rise.
Carney - who says Canadians cannot keep borrowing so heavily
against the value of their homes - said financial authorities
were looking closely at levels of household debt and ways to
contain the problem. He also made it clear that too tight a
clampdown could hurt economic growth.
"There's always more that could potentially be done. But
these measures, there has to be an element of prudence in
balancing the pace of slowing of this phenomena with the
underlying growth of the economy," he said.
Carney also noted that Canadians appeared to be listening to
repeated warnings not to take on too much debt a nd to prepare
for higher rates.
"What we've also seen in recent months is that the
proportion of variable rate debt on new debt that's being taken
on - new mortgages being taken on - has gone down quite
substantially," he said.
Some analysts fear that booming property prices in some big
cities could presage a housing bubble, a nd Carney said there was
reason to be wary about the value of condominiums in some
metropolitan areas such as Toronto.
"There are some cases where valuations are firm, shall we
say, and that there's probably more downside risks than upside
risks to the future evolution of prices so that's an environment
that warrants caution," Carney said.
The Bank of Canada last week increased its growth forecasts
for the first three quarters of this year, testament in part to
how domestic firms are dealing with weak markets and a strong
Carney repeated that firms needed to export more to emerging
nations, which are growing much faster than traditional trading
partners such as the United States and the European Union.
In time, he said, the currencies of big emerging nations
would most likely rise against the U.S. and Canadian dollars.
"That's another reason why our businesses must find markets
in the emerging countries, because they'll have another (source
of) revenue, revenue from the appreciation of their currencies
against ours," he said.