Canada Carney sees stimulus easing recession

SAO PAULO (Reuters) - Fiscal stimulus measures taken around the world could soften a global recession but investors should not expect an imminent round of coordinated interest rate cuts, Bank of Canada Governor Mark Carney said on Sunday.

After meeting with G20 central bankers and finance ministers in Sao Paulo, Brazil, Carney told Reuters he was confident that governments in some emerging market economies and more than one industrialized economy would soon be announcing new steps to boost growth.

"The sum of that could start to be significant," he said in an interview.

"What I heard, in terms of understanding the situation and of the policy intent, suggests there's significant enough policy that could be forthcoming to reduce the depth of that recession," he said.

In its last forecast in October, the Canadian central bank projected a global recession in 2009 and said the Canadian economy would grow by about 0.6 percent.

That domestic growth forecast is now looking overly optimistic, Carney hinted, but said the expected increase in demand for commodities and other goods from China and other growing economies could offset any downward revision.

"We're updating our view in December on the depth of the global slowdown and what it means for Canada ... There's a bit of an offset (from the stimulus) so we'll see whether that nets out to positive or negative," he said.

JOINT ACTION UNLIKELY

Carney warned against "overinterpreting" talk of coordinated monetary policy action at the G20 nations to mean the world is on the verge of another round of joint rate cuts of the kind seen on October 8. That kind of action is "extremely rare," he said.

Each country must set rates according to its own needs, he said.

In Canada, he said: "We've said some additional stimulus will be required. It is the Canadian inflation outlook which will dictate that," he said.

Inflation in Canada and the United States will fall to low levels but there is no risk of a deflationary period, he said.

After the short-term task of stabilizing markets and shoring up growth, each of the world's leading economies needs to move quickly to regulate its own system to bring institutions like hedge funds under regulatory control.

G20 leaders meeting in Washington on November 15 could easily sign off on a 100-day timeline for that. "It wouldn't be out of character for leaders to demand those kinds of response times," he said.

The creation of new rules and cross-border monitoring of them must be done by using the expertise of existing groups like the Financial Stability Forum and the International Monetary Fund, he said.

The creation of a single, new body for supervising global regulation is unrealistic. "There's never going to be a one-stop 'financial stability are us'," he said.

Carney was lukewarm to calls for expanding the Group of Seven club of the wealthiest nations to give countries like China, India and Brazil a stronger voice when deciding how to rebuild the global financial order.

These countries need to be included around the table but the main purpose of any such group should be to have an impact on market stability, he said.

"From a central banking perspective, we look for effectiveness ... My point is the G7 remains quite effective."

(Editing by Todd Benson and Martin Golan)