Mark Carney Repeats that the Bank of Canada May have to Raise Rates

OTTAWA — Bank of Canada Governor Mark Carney has said again that the bank may have to raise interest rates to keep inflation in check as Canada’s economic recovery advances.
“Given the smaller output gap, given the slightly firmer underlying inflation, the possibility of withdrawal of some degree of the considerable monetary stimulus that is currently in place may become necessary, consistent with achieving the (Bank of Canada’s) 2% inflation target,” Carney said in an interview on Friday with Market News. The interview was published on Monday.
“As the expansion progresses, the possibility of some withdrawal becomes more likely, but number one, that’s always going to be guided by achieving the inflation target, and number two, this is happening in an environment of considerable global economic risk, and so it depends importantly on the evolution not just of domestic but global economic developments. So we will certainly weigh any such decision carefully.”

He said it was not necessary to be more explicit about the timing of a possible move but said that Canada was “well into an expansion”.

“The bank’s most recent estimate of the output gap is about half a percent. That puts us in very unusual company,” Carney said. “The economy in our view is growing above trend and will do so over the balance of this year. So the Canadian economy is – relative to the major advanced economies – performing well by any measure.”

The governor said he was well aware of the global risks, and added: “There are also risks domestically, and they’re two-sided.”

He said Canadian inflation expectations were “extremely well anchored”.

The bank left its key overnight interest rate unchanged at a very low 1% on Tuesday but signalled it may have to raise rates at some point.

© Thomson Reuters 2012