Bank of Canada Governor Mark Carney 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.
Carney, in an interview with CTV television, said the central bank wants to see the currency reflect the country’s economic fundamentals. He declined to comment on a specific level of the Canadian dollar.
“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. “So our challenge as a country is how do we use that capital that comes in. 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.”
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, Carney said, adding that policy makers are prepared to take further measures to stem increases in debt if needed.
“We’re watching obviously this very closely and if additional steps are required, including by the bank, we will take them,” he said in the interview.
The key to the country’s growth will hinge on whether Canada’s businesses increase investments to become more productive and focus more on faster growing emerging markets,, he said.
Asked whether he has been courted to replace Mervyn King as governor of the Bank of England, Carney said hadn’t been approached for the job.
“I have my job as the governor of the Bank of Canada and absolutely intend to fulfill that role,” he said. “I look forward to working with the next governor of the Bank of England and I’m sure this government has many options to fulfill that role.”
Carney, who is also chairman of the Financial Stability Board, said the group that oversees bank regulation for Group of 20 countries is studying whether European efforts to bolster capital requirements in the region are sufficient.
“One of the other problems in Europe may be that the way they are designing their capital regime, maybe, is not as stringent as we expect at the FSB,” he said, adding the group will have a report by the end of this year on the matter. “That will have implications for how the euro crisis is resolved. One would expect Europeans will adjust policy accordingly.”