‘Is that really the best we can do? Yes.’

By Erica Alini - Tuesday, May 21, 2013 at 2:52 PM - 0 Comments

Outgoing Bank of Canada Mark Carney had said before that, as he leaves Canada to head the U.K.’s central bank on July 1, the economic picture he’s leaving behind in his home country is that of a glass that is “more than half full.” Today, in his last public remarks as a Canadian central bank official, he reiterated that point.

What awaits the next BoC chief is a delicate transition from a growth model based on household consumption, real estate investment and government stimulus to one propelled by exports and business investment, Carney said at the Board of Trade of Metropolitan Montreal.

“We cannot grow indefinitely by relying on Canadian households increasing their borrowing relative to income.”

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Advice for incoming BoC governor: It’s time to start raising interest rates

By Julian Beltrame, The Canadian Press - Wednesday, May 15, 2013 at 12:34 PM - 0 Comments

OTTAWA – Incoming Bank of Canada governor Stephen Poloz is already getting advice on what to do once he takes charge next month — start hiking interest rates.

The C.D. Howe Institute says in report authored by economist Paul Masson, a former special adviser to the central bank, that after five years of super-low interest rates, it is time to take the anemic economy off its meds.

He says an extended period of low interest rates is introducing pervasive problems into the economy, such as asset bubbles in housing and risk-taking and inefficient investments.

As well, low interest rates are threatening the sustainability of pension funds and contributing to record high levels of household debt.

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Carney has left Poloz with little to fight slow growth

By Chris Sorensen - Friday, May 10, 2013 at 5:40 PM - 0 Comments

(Adrian Wyld/CP)

Outgoing Bank of Canada governor Mark Carney’s stick-handling of the 2008 financial crisis was widely viewed as a central-banking success story; it helped him snare his new gig as governor of the Bank of England, starting on July 1. But in many ways, Carney’s replacement, Stephen Poloz, the head of Export Development Canada, has an even more vexing task in front of him. Whereas Carney moved swiftly but predictably to drop benchmark interest rates when faced with the global financial crisis (and, somewhat less predic ably, announced he intended to keep them there for an extended period), Poloz faces several smaller, but no less troublesome threats: an overheated housing market, soaring personal debt, stubborn unemployment and anemic GDP growth. And they come at a time when conventional monetary policy has far less influence, given that money has been so cheap, for so long.

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What we’ll miss about Mark Carney

By John Geddes - Thursday, May 2, 2013 at 7:31 PM - 0 Comments

On Stephen Poloz’s big day, as he basks in the media attention that comes with being named the next Governor of the Bank of Canada, let’s not resort to words like “dull.” There’s no need for that sort of talk. “Stolid” serves and doesn’t sound nearly as harsh.

Still, there sat Poloz in the National Press Theatre this afternoon, right beside the departing Mark Carney. It was impossible not to sag a bit at the thought of Ottawa reverting to being just a bit more its own cliché. You judge me shallow for dwelling on Carney’s performance style? Show a little pity. Consider those of us who jobs entail listening regularly to what’s intoned by the less, shall we say, dynamic of our current federal cabinet ministers.

And Carney’s ability to command willing attention—whether on stage in Davos or in studio with Strombo—wasn’t merely diverting. Because it was the charismatic Carney talking, we paid a tad more attention to, for instance, dire warnings about consumer debt loads. Even policy issues that touch that so intimately on the financial lives of most Canadians can’t compete for public attention unless leaders show at least a bit of flare.

Typically, we’d look for those skills in elected politicians. But there aren’t many in Prime Minister Stephen Harper’s Ottawa with that sort of knack. And now there will be one fewer in the senior ranks of the Canadian public service—though one more at the Bank of England, where Carney takes over next month.

In fact, Poloz lands the top job at the Bank of Canada in the wake of, not just one unusually watchable performer, but two in a row. If Carney was all cool urbanity, his raspy-voiced predecessor, David Dodge, projected an avuncular quality that was powerfully reassuring—a pretty handy trick for a central bank gov.

Now, Poloz, 57, is no slouch. He’s not a Harvard and Oxford man like Carney, but is a respected economist with a PhD from University of Western Ontario. He has deep Bank of Canada roots, having worked there for 14 years, including a stint in the 1990s as chief of research, running the shop Carney calls the bank’s “engine room.” Poloz later joined the federal Export Development Corporation as its chief economist in 1999, before taking over as EDC’s president and CEO in 2011. That put him in close contact with the CEOs of many Canadian exporting companies.

Not surprisingly, he was ultra-cautious at today’s news conference, laughing off some questions until he’s had time to settle into the job, or just avowing that he likes the way Carney has run things. Perhaps his most emphatic answer came late, when Poloz drew on his recent EDC experience to highlight the prime importance of a U.S. recovery, and the resulting boost in demand for Canadian exports, in Canada’s outlook.

“What we’re looking for is that the engine of growth on the demand side gradually shifts into the export side of the economy,” Poloz said, citing the EDC’s recent global export forecast. “It shows pretty strong growth in Canadian exports for next year, on the back of the recovery that we are seeing in the United States in particular, which has been the lacking bit in the story until recently.”

That explicit reference to the perspective he brings from his last job served as a no doubt unintentional reminder that Poloz is an outsider, chosen to succeed Carney over a strong internal Bank of Canada candidate—senior deputy governor Tiff Macklem. Carney was, to my ear at least, at his polished best today fielding the awkward question of whether Macklem will stay on. “Tiff is very much looking forward to working with Steve,” he said in part, lapsing into first names since these are, you know, old pals who get along famously.

Financial market insiders will be arguing for days over what it means that the Conservative government picked Poloz over Macklem. Was it mainly a matter of policy bent, a preference for Poloz’s export orientation? Was it an Ottawa culture issue, a sign that the Harper crew saw Macklem as too much the consummate mandarin?

These can be interesting questions, if you like that sort of thing. (I do.) But for most Canadians, the noticeable part of today’s handoff won’t really be about monetary policy, much less about Ottawa’s arcane inner workings. The change that matters will be how a face and voice, which sometimes, against all odds, actually captured the attention of those who are susceptible to paying attention between elections to the way the country is run, isn’t going to be around anymore.

That’s not the new guy’s fault. He’s there to do a job, and he has the credentials to do it. But with a government in power that controls its own message (and messengers) so tightly, Carney’s ability and willingness not to be boring is certain to be sorely missed.

10 things you should know about the new Bank of Canada governor

By Tamsin McMahon - Thursday, May 2, 2013 at 7:08 PM - 0 Comments

Finance Minister Jim Flaherty has named Stephen Poloz the next governor of the Bank of Canada. The announcement shocked analysts who had thought that long-serving senior deputy governor Tiff Macklem was a front-runner. Poloz, head of the federal trade agency Export Development Canada, has a low profile in financial circles.

Here’s a primer on who he is and what he might bring to the job:

1. He is 57 and married to Valerie Poloz. The couple has two children.

2. He spent 14 years at the Bank of Canada, rising to chief researcher, before being appointed chief economist at Export Development Canada in 1999. He is currently the agency’s CEO.

3. During the 1990s, he was managing editor of the Montreal-based International Bank Credit Analyst, an influential financial publication that long warned against jumping into frothy, dot-com fuelled stock-market bubble before it burst.

4. He has also been a visiting scholar at the International Monetary Fund and the Economic Planning Agency in Tokyo.

5. He was previously rumoured to be on the short-list of candidates to replace David Dodge as Bank of Canada governor in 2008.

6. He warned early on of a potential for a major financial crash:

In 1998, after Long-Term Capital Management went bust, requiring a $3.6-billion U.S. government bailout, some analysts shrugged off the episode as the workings of a rogue hedge fund. Poloz was among those who predicted the fund’s failure was more likely a sign of a financial system that was working itself into a bubble built on complex and opaque derivatives, which would eventually require more bailouts. “I think there will be lots more” fund failures, he predicted in 1998.

7. … and then got it wrong after it happened.

In 2007, Poloz predicted the financial crisis would be short-lived. “A key source of comfort during the financial turmoil of recent weeks has been the consensus that the world economy remains strong,” he wrote in an analysis. “This is important, for it means that even if the financial contagion continues to spread, the world economy will prove resilient to the shock.”

8. He helped set the framework for Bank of Canada policies largely seen as successful in helping Canada stave off the worst of the global recession.

In 1994, while still at the Bank of Canada he co-authored a paper describing in detail the central bank’s approach to its medium-term forecasting. It may sound dull, but the paper was a critical step in the bank’s sweeping shift away from clandestine operations and toward more transparency in how it sets monetary policy.

It’s an approach strongly supported by outgoing governor Mark Carney and one that he has signaled he’s bringing to the Bank of England. Carney is a vocal a proponent of more communication and forward guidance from central bankers — signaling to investors where interest rates will likely be headed in the future —arguing that it can be calming on the markets and perhaps induce consumers to adjust their spending.

9. He disagrees with Carney on a few key issues.

Unlike Carney, who has criticized Canadian corporations for sitting on “dead money” instead of investing, Poloz warned in a 2011 speech that the stockpiles of cash were a “necessary insurance against the next black swan” in an era of deep uncertainty about the future of both the Canadians and the global economy.

Carney has also openly dismissed the “Dutch Disease” argument that Canada’s high “petrodollar” is harming the manufacturing economy. Poloz, on the other hand, has publicly warned that the rising Canadian dollar was harming the economy, mainly because it exacerbated the widening gulf between Eastern manufacturing-based economies and Western commodity-based ones.

He has cautioned that such economic divergence would become a long-standing problem in Canada and that similar conditions in the 1970s had led to “stagflation” when inflation rises rapidly but economic growth stalls.

“This two-speed economy thing is enormous,” he told a 2008 conference on how energy industry affects the economy, arguing that the Bank of Canada should pay more attention to the dollar’s exchange rate when setting interest rates.

10. Perhaps he’s so vocal because he initially got it so wrong when it came to the dollar:

In spring 2007, Poloz proclaimed that the Canadian dollar, then sitting at 94 cents, would fall to 84 cents U.S. by the end of the year because the weak U.S. and global economy would hurt demand for Canadian exports. “There is a global slowdown that is grinding through the system, and oil prices are probably going to drift lower rather than higher, and in that context you get the Canadian dollar going down not up.”

Instead, the dollar hit a high of $1.08 in November. It took roughly two years for his prediction to come true — the dollar dropped in 2009 — though the loonie has been stubbornly sitting around par since 2010, thanks largely to strong oil prices.

Some analysts rushed to describe Poloz as an “outsider” whose appointment signals a morale crisis at the Bank of Canada and a push by the Harper Conservatives for more control over monetary policy. Indeed, the Canadian dollar fell on news of his appointment. But Poloz could also be viewed as one of Harvard Business School professor Joseph L. Bower’s “inside outsiders” — the kind of leader who has both deep institutional experience and knowledge, but not so much that he’s become part of the establishment.

A good example of such a leader, according to the Harvard Business Review? Mark Carney.

Stephen Poloz named new Bank of Canada governor

By The Canadian Press - Thursday, May 2, 2013 at 6:37 PM - 0 Comments

OTTAWA – Stephen Poloz, the former head of Export Development Canada, was named Thursday as the next governor of the Bank of Canada, replacing Mark Carney, whose term ends June 1.

The appointment to a seven-year term follows a lengthy five-month search process set in motion by Finance Minister Jim Flaherty after Carney announced he would step down June 1.

“Stephen Poloz has a long and distinguished career in the public and private sectors with 30 years experience in financial markets, forecasting and economic policy,” Flaherty told a news conference.

“I am confident he has the skills and experience required to lead the Bank of Canada at a time of global economic uncertainty.”

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Mark Carney’s legacy, in his own words

By Erica Alini - Wednesday, May 1, 2013 at 10:50 PM - 0 Comments

(Chris Wattie/Reuters)

Bank of Canada Governor Mark Carney has 30 more days on the job, and he is determined to avoid the question that every journalist and MP would love to get him to answer: What does he think his legacy is? He dodged it at his last hearing before the Finance Committee last week, and aptly deflected it again this evening in Edmonton, where he was speaking at the University of Alberta: “I’m a member of a team, the Governing Council of the Bank of Canada,” he quipped, “if my legacy turns out to be bad, I’m taking them down with me.”

But the governor took Wednesday’s lecture as an opportunity to look back at the “fascinating, sometimes harrowing” five years he’s spent at the helm of Canada’s central bank—and in that sense he delivered the closest thing to an assessment of his own legacy that we’ll get from him for quite some time. Here’s the gist of it:

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Mark Carney’s legacy, and what it means for his successor

By Stephen Gordon - Wednesday, May 1, 2013 at 12:17 PM - 0 Comments

(Fred Chartrand/CP)

Going into the economic and financial crisis of 2008-09, Mark Carney had several advantages that most other central bankers did not:

• The Bank of Canada had accumulated a not-inconsiderable amount of institutional credibility after almost twenty successful years of inflation targeting.
• Canada’s banking system was highly regulated and more than solid enough to withstand the crisis.
• The housing sector was still in a position to respond to lower interest rates.
• Commodity prices bounced back rapidly a few months after the financial crisis hit.

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GDP growth in February: ‘a ray of sunshine’

By Erica Alini - Tuesday, April 30, 2013 at 11:43 AM - 0 Comments

To recap:

• The Canadian economy beat the forecasts in February, growing 0.3 per cent following an upwardly revised gain of the same magnitude in January. It was the strongest two-month period of growth since July-August 2011.
• Most of the growth came from goods-producing industries, where activity rose 0.9 per cent. The strongest gains were in the resource sector, with output in mining, quarrying and oil and
  gas extraction jumping 2.2 per cent compared to January.
• Manufacturing also delivered a remarkable performance, with production rising 0.8 per cent.
• The service sector was overall virtually flat, inching up a mere 0.1 per cent. The arts and entertainment industry, however, bucked the trend, with a 3.3 per cent gain that likely reflects a recovery from the NHL lockout.

What the analysts are saying:

• The February release was “a ray of sunshine in an economy that needs all it can get,” wrote CIBC’s Avery Shenfeld, who predicts first-quarter growth of two per cent. TD revised its expectation for the first three months of the year to two per cent as well, up from 1.6 per cent.
• Growth for the year seems to be on track to come in slightly above the latest Bank of Canada projection of a 1.5 per cent expansion, noted RBC’s Paul Ferley. The pickup, however, is unlikely to be enough to significantly reduce unemployment.
• “It’s not time to break out the champagne just yet,” warned TD’s Leslie Preston. There are signs that the U.S. economy is slowing down, which could put the breaks on Canada’s momentum.

Delay casts air of suspense over Bank of Canada governor selection

By The Canadian Press - Sunday, April 28, 2013 at 6:16 PM - 0 Comments

OTTAWA – With the announcement due in days, the overwhelming odds remain that second-in-command Tiff Macklem will be appointed the next governor of the Bank of Canada.

Yet the nearer the date approaches to Mark Carney’s June 1 departure for London, questions are being asked about what is taking Finance Minister Jim Flaherty so long to confirm what markets and economists have long considered a near slam dunk.

It’s been a full five months since Flaherty has known his first appointee to the central bank was taking his leave early, and even though the finance minister said there would be no shortcuts in the search for a successor, few expected it would take this long.

“Handicapping this is like trying to handicap a Harlem Globetrotters game. I’d give it about 85 per cent probability,” says Bank of Montreal chief economist Doug Porter.

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Focus groups felt new $5 plastic notes too ‘cartoonish’

By The Canadian Press - Sunday, April 28, 2013 at 12:50 PM - 0 Comments

OTTAWA – The Bank of Canada is set to unveil its latest plastic bank notes this week — but documents show some people found one of the new bills too cartoonish and the other too old-fashioned.

Focus groups consulted about the proposed images for the new bank note series thought the space motif of the new five-dollar bill looked childish.

Others were left scratching their heads over the depiction of Dextre, a Canadian robotic handyman on board the International Space Station.

Some people wrongly assumed Dextre was the name of an astronaut shown on the bill, while others had no clue who the name referred to.

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Mark Carney sums up his tenure

By The Canadian Press - Wednesday, April 24, 2013 at 8:37 PM - 0 Comments

OTTAWA – For Mark Carney it was an afternoon of reflection, a time for measuring successes with just a tinge of lament for unfinished business.

Carney, although he does not leave his position as governor of the Bank of Canada to take the top job at the Bank of England for another month, gave his last scheduled testimony before parliament — in this case the Senate banking committee — on Wednesday afternoon.

Unlike Tuesday’s meeting with MPs which hit on several contentious policy issues, the two-hour session with the upper chamber was more relaxed, with each senator on the panel taking turns praising rather than grilling the governor after his introduction as a central bank “superstar.”

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The economy’s potential may be a little lower than we thought

By Stephen Gordon - Friday, April 19, 2013 at 11:27 AM - 0 Comments

The Bank of Canada’s forecasting model (or rather models — Bank staffers use more than one when putting their projections together) has a built-in stability property: projections for GDP eventually return to potential, that is, a level consistent with no inflationary or disinflationary pressures. That was the case in the projections in the January Monetary Policy Report and again in the April MPR. It means that when short-term growth projections are revised down — as they were in January and in again in April — forecasts for growth rates a year or two out are simultaneously revised up so that the economy still reaches potential in the medium term.

But there was an interesting feature of the April MPR that I haven’t seen anyone mention: one of the Bank’s better-known estimates for capacity output was revised down in April, reflecting historical revisions. Current estimates for potential output for the third quarter of 2012 are 0.25 per cent lower than they were in January. So even though the new set of projections still shows convergence to potential in the medium term, this convergence occurs at a lower potential output trend:

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Carney: Household debt, if untamed, could warrant higher interest rates sooner

By Erica Alini - Thursday, April 18, 2013 at 3:38 PM - 0 Comments

(Chris Wattie/Reuters)

Bank of Canada Governor Mark Carney is in Washington D.C. today, where he found the time for a televised chat with reporters hosted by Reuters. Here are some of the most interesting bits:

Expect a rate hike if Canada’s household debt can’t be tamed otherwise. Also, the housing market slump will ideally last two years:

The governor said appeared satisfied with developments in the household sector: consumer debt has slowed “quite nicely.” However, he added, the BoC might hike up interest rates “sooner” if the issue of Canadians’ overstretched wallets isn’t addressed “in a timely way.”

Carney also noted that the housing market, the major driver of Canada’s household debt spree, is “moving in the right direction,” with prices “adjusting” and the pace of new residential construction slowing. The real estate and consumer debt cool-down, he added, is “an adjustment that best takes place over a couple of years.”

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Canadian firms sour on economy after tough year, temper investment intentions

By Julian Beltrame - Monday, April 8, 2013 at 11:57 AM - 0 Comments

OTTAWA – Canadian firms have become more pessimistic about the economy and plan to ratchet down investment plans while keeping hiring modest, the newest business outlook survey by the Bank of Canada suggests.

The spring sampling of 100 firms representative of the Canadian economy continues a recent trend with muted to sour prospects for sales, hiring and investments.

“Taken together, responses of the spring survey indicate that, following a recent slowing in economic activity, firms expect business conditions to remain challenging over the next 12 months,” the central bank said Monday in its analysis of the results.

“The balance of opinion on investment is positive but has declined, and hiring intentions are little changed. Firms indicated that uncertainty continues to weigh on their plans and decisions.”

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Dear Canada, being the little guy who plays by the rules doesn’t always pay

By Erica Alini - Tuesday, April 2, 2013 at 5:03 PM - 0 Comments

“Currency war,” possibly the most exciting-sounding jargon in the economics vocabulary, is an expression coined by Brazilian Finance Minister Guido Mantega in 2010 — and it’s been used a lot lately. It refers to policies that lower a country’s exchange rate, which makes exports more competitive and could thus stimulate growth. The catch is that any boost generally comes at the expense of other countries, which see their currencies appreciate and their exports potentially losing market share. Needless to say, tinkering with one’s exchange rate invites retaliation — hence the risk of a, quote-unquote, war.

In the scenario above, Canada right now is the other country, the one on the receiving end, according to Bank of Canada Deputy Governor John Murray. “Pressures from those who break the rules fall on those who follow them, especially the little one [read: Canada among others],” he told an audience of economists and central bank officials at the Peterson Institute for International Economics in Washington D.C. today. (You can download Murray’s Powerpoint presentation here.)

Canada, according to Murray, is in the same boat as Brazil: both have seen their exchange rates appreciate substantially over the past decade. But whereas the Brazilian government has generally laid the blame on advanced economies, Murray’s finger today was pointing squarely at emerging economies, and particularly China.

Let me step back for a bit of background here. There are two ways to trigger an exchange rate depreciation: the first is to sell massive quantities of your own currency and buy loads of someone else’s (which increases the global supply of — and decreases the value — your currency, with opposite effects for the countries whose currency you’re buying). The second is to implement policies that indirectly affect the exchange rate, such as expanding the domestic money supply and keeping interest rates low — in other words, lax monetary policy. Many advanced economies have adopted the latter set of measures as a way to stimulate their economies after the financial crisis. This has irked many emerging economies — including, you guessed it, Brazil — which saw their currencies appreciate. In the case of Japan, an extraordinarily stimulative monetary policy has been described by some as a stealth attempt to tinker with the exchange rate to gain an unfair advantage.

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Who is helping to select the next PBO? And how did we get an interim PBO?

By Aaron Wherry - Thursday, March 7, 2013 at 6:32 PM - 0 Comments

Kevin Page is concerned that, as noted here earlier, the membership of the committee that will help select the next parliamentary budget officer is being kept secret.

When I asked the Library of Parliament about this issue earlier this week, the response from a spokeswoman was as follows.

As is the case with any Governor-In-Council appointment process, and for that matter most personnel competitions, the work and deliberations of the selection committee are confidential until the process has been completed.

The New Democrats are pointing, by comparison, to the selection of the next governor of the Bank of Canada. Here were Thomas Mulcair’s comments to reporters after QP this afternoon.

We know who’s on the selection committee to replace the Governor of the Bank of Canada. It is a bit surprising that the Library of Parliament finds that its appointments process is a notch higher and the public isn’t allowed to know. It’s quite a big concern for us because the Parliamentary Budget Officer of course came in as part of the much ballyhooed Accountability Act. They’ve gutted every other part of the Accountability Act since they actually formed government so we’re quite concerned about the PBO.

I was consulted on the PBO. I was the NDP’s Finance Critic when Kevin Page came in. Not only was I consulted, I got to interview Kevin Page. He insisted on it. The government wanted to make sure that everybody was onside and our party got to interview him and I thought that he was a sterling choice. It turned out that that was a good evaluation. 

So it’s quite clear to us that they’re not taking it very seriously. The date for the announced holding of the competition is actually after the end of Kevin Page’s mandate. We’re really concerned. We’re really concerned. 

Meanwhile, Government House leader Peter Van Loan has just announced—via a news release that arrived at 6:02pm—that the Parliamentary Librarian, Sonia L’Heureux, will take over as the interim parliamentary budget officer when Kevin Page’s term expires on March 25.

A month ago, the government was reported to have claimed that appointing an interim PBO was not an option.

Bank of Canada says low interest rates ‘appropriate for a period of time’

By The Canadian Press - Wednesday, March 6, 2013 at 10:23 AM - 0 Comments

OTTAWA – The Bank of Canada is sticking to its low interest rate policy and says it will likely continue to do so for some time.

The bank is keeping the trendsetting overnight rate at one per cent, where it has been since September 2010.

But in a change from its previous forward-looking guidance, it says such a low level will likely remain in place for a period of time.

The bank says in a statement that it believes household debt levels are stabilizing, removing some of the worries about low rates for a long time.

On the economy, the bank says there is considerable slack, but it still believes growth will pick up this year.

In January, the bank projected growth rates of 2.0 per cent and 2.7 per cent for 2013 and 2014.

Will Mark Carney still be the world’s most hawkish dove tomorrow?

By Erica Alini - Tuesday, March 5, 2013 at 12:50 PM - 0 Comments

That the Bank of Canada will keep the overnight rate steady at one per cent tomorrow is a matter of almost scientific certainty. If there’s anything to discuss at all, it’s whether Governor Mark Carney will continue to be the most hawkish of dovish central bankers.

In other words, will the BoC maintain its stance that the next rate move, whenever that may be, will be a raise? The bank has been warning since April of last year that interest rates are headed nowhere but up. The exact words were:

In light of the reduced slack in the economy and firmer underlying inflation, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate, consistent with achieving the 2 per cent inflation target over the medium term. 

Though the Bank toned down its wording as the economy slowed in the latter part of the year, it has kept some version of that warning in every rate announcement since, alone among major central banks to maintain what monetary policy nerds call “a tightening bias.”

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Canadian economy moving toward a better mix of growth: BoC’s Carney

By The Canadian Press - Sunday, February 17, 2013 at 2:01 PM - 0 Comments

OTTAWA – Bank of Canada governor Mark Carney says he believes the Canada is moving toward a more sustainable economy that is less dependent on borrowing and more on investment and export sales.

The central banker says in an interview on CTV’s Question Period that while it was essential for him and governments to stimulate borrowing and spending during the global economic crisis, that phase has run its course.

He says the economy now needs to move toward business investment and export growth for future growth, and he believes Canada will do so.

The comments come after the governor and Finance Minister Jim Flaherty took part in a meeting of the world’s biggest economies in Moscow, where officials pledged not to manipulate their currencies to boost exports.

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What Mark Carney told (Canadian) MPs about the state of the economy

By Erica Alini - Tuesday, February 12, 2013 at 4:08 PM - 0 Comments

Bank of Canada Governor Mark Carney was once again answering questions from MPs this morning — not in London this time but in the more familiar setting of the House of Commons finance committee. The conversation spanned household debt, jobs, the Dutch Disease, currency wars, the Bank of Canada’s forecasting abilities and even credit card regulations, which Raymond Côté, NDP MP for Beauport-Limoilou, had strong feelings about but were unfortunately deemed completely outside the BoC’s mandate.

Here’s a what the governor argued, in a nutshell:

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Carney says Canada particularly vulnerable to currency manipulation

By The Canadian Press - Tuesday, February 12, 2013 at 10:29 AM - 0 Comments

OTTAWA – Bank of Canada governor Mark Carney warns the Canadian economy would suffer from a currency exchange war — a battle the G7 has pledged not to engage in.

Carney tells a parliamentary committee in Ottawa that as a smaller economy, Canada does not have the flexibility of the United States and it would be futile for him to seek to manipulate the level at which the loonie is traded.

Before his appearance Tuesday morning, the Group of Seven leading industrial nations, which includes Canada, warned that volatile movements in exchange rates can adversely hit the global economy.

The G7 statement urges countries to set monetary policy to meet local economic targets and not to engage in a currency war through the manipulation of their currencies in order to boost exports at the expense of others.

Carney says at best, manipulating the currency works only in the short term. Eventually the economy must adjust through lower wages for the country’s workers, something he says parts of Europe are currently experiencing.

More generally, Carney says he believes the weakness in the Canadian economy during the latter half of last year was partly due to temporary factors.

Importantly, he believes the external risks to the global economy going forward have diminished and that Canadian growth will pick up pick up steam this year.

On a related issue, Carney says he believes the record discount on the price Alberta producers are paid for Canadian crude is due to refinery and pipeline bottlenecks, not to lower demand for crude in the U.S.

Tighter mortgage rules might be ‘insufficient’ to curb household debt

By Erica Alini - Tuesday, February 12, 2013 at 7:00 AM - 0 Comments

Targeted rules are often a better way to deal with a buildup of risk in the economy than monetary policy, BoC Deputy Governor Timothy Lane said in his prepared remarks for a speech he gave today at Harvard University. So, for example, if households have gone on a borrowing binge and house prices are inflated, you’d be better off tightening mortgage regulations than raising interest rates. Tougher mortgage rules target the housing market specifically; an interest rate hike would also hit exporters by causing your home currency to appreciate—unless other countries rein in their monetary policy as well (which ain’t happening any time soon in the real world).

This is a well-known policy stance of the BoC. Governor Mark Carney just told all this once again to British MPs last week: Canada is better off curing its household debt problem with a healthy dose of mortgage-rule tightening rather than an rate raise, which would come with serious side effects.

And yet, if the more sophisticated, light-touch treatment doesn’t do the trick, the BoC might have to use its rougher, heavier medicine, Lane told his distinguished Harvard audience today:

“If such targeted prudential measures turned out to be insufficient, monetary policy could also be used, within a flexible inflation-targeting framework, as a complementary instrument to address financial imbalances.“

Canadians have slowed down the pace at which they’re taking on new debt and there’s plenty of evidence the residential real estate market is cooling. But, Lane noted, that could still turn out to be a temporary improvement:

“it is possible … that household spending could regain momentum”

After all, if interest rates stay at rock bottom, borrowing will stay cheap.

Gays, blacks nixed as images on Canada’s new plastic bank notes: report

By Dean Beeby, The Canadian Press - Sunday, February 10, 2013 at 6:54 AM - 0 Comments

OTTAWA – The Bank of Canada considered celebrating gay marriages, black hockey players, and turban-wearing RCMP officers on its new plastic bank notes — but eventually nixed them all in favour of the more traditional images of a train, a ship and a monument.

Internal documents show that focus groups and a Bank of Canada team reviewed a series of currency images intended in part to reflect the diversity of Canada’s population, particularly the country’s varied ethnic character.

Images that were considered included a Chinese dragon parade, the swearing in of a new citizen, Toronto’s annual Caribbean festival, children of different ethnic backgrounds playing hockey or building a snowman, and a person in a wheelchair playing basketball.

The image catalogue was drawn up in 2008 by The Strategic Counsel, a market research firm hired for $476,000 to help the Bank decide how to illustrate its new series of polymer $5, $10, $20, $50 and $100 bills. The first note, the $100, began circulating in November 2011.

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