Carney Says Canada Differences May Necessitate Rate Rise

Bank of Canada Governor Mark Carney said his country is in a “very different place” than economies such as the U.K.’s that are in crisis, and may require higher borrowing costs.

“We had been growing above trend, and the extent to which we continue to grow above trend, we may withdraw some of that monetary policy stimulus,” Carney said in an interview with the British Broadcasting Corp. in London. “We have a financial system that’s firing on all cylinders and so we will have to adjust, we will adjust if it’s appropriate. That said, the world’s a very dangerous place at the moment.”

Talk about increasing interest rates sets Canada apart from central banks that are easing monetary policy, such as the U.S. Federal Reserve, the European Central Bank and the People’s Bank of China. Investors have priced in a more than 40 percent chance that Carney will raise rates by April, according to trading in overnight index swaps.

The Canadian dollar appreciated 0.25 percent versus its U.S. counterpart to 99.18 Canadian cents at 10:30 a.m. in Toronto. One Canadian dollar buys $1.0083.

Carney said slowing global growth has had a “knock-on” effect on Canada by driving down commodity prices, which he said still remain about 20 percent above “historic averages.”

“We’re still a net beneficiary of that but there is an adjustment and a fairly synchronized deceleration of the global economy at the moment,” he said in the interview, according to a transcript provided by the Bank of Canada.

Carney also said there is no risk that rising household debt levels could trigger a banking crisis in Canada because mortgages are insured by the government, which has the most sound fiscal position among Group of Seven countries.

CTV Interview

In a separate interview with CTV television from London, Carney said Canada’s housing market has begun to ease and the growth of household debt is slowing, in part due to recent actions by the federal government and the country’s banking regulator. Policy makers are prepared to take further measures to stem increases in debt if needed, according to Carney.

“We’re watching obviously this very closely and if additional steps are required, including by the bank, we will take them,” he told CTV.

Carney also said the Canadian dollar has become a safe haven for investors and the country needs to veer the incoming capital to productive uses rather than housing.

The Bank of Canada wants to see the currency reflect the country’s economic fundamentals, and “those fundamentals are strong relative to the rest of the world but there is also an element right now of a safe haven premium for the Canadian dollar,” Carney said in the CTV interview.

“So our challenge as a country is how do we use that capital that comes in,” he said. “We can use it to grow our economy, invest it in new productive assets and industries, or we can build houses. Our view is we should do the former.”

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