Speaking in an online interview, Carney said household credit is losing steam but is still “at high levels.”
He noted the Bank of Canada has regularly raised the possibility it might begin driving up borrowing costs and has warned consumers to be wary of accumulating excess debt they might not be able to afford once interest rates rise.
“We have conducted monetary policy in, we think, a pretty transparent way that has highlighted the risks (of rising household credit) and the potential consequences for the path of interest rates. In other words, they could be higher sooner if this isn’t addressed or this isn’t adjusted in a more timely way,” Carney told Thomson Reuters’ in Washington, D.C.
The Bank of Canada generally uses its key interest-rate setting to push down commercial bank interest rates in hopes of stimulating economic growth or, conversely, pushes up rates to retard business activity as a way to dampen inflation.
But Carney, who is cutting short his appointment in Ottawa to take over as head of the Bank of England, has also put a high priority on using his powers to reduce household debt and avoid a housing bubble. As he prepares to head to Britain, he is saying his warnings—he has not actually pushed up interest rates for more than two years—and federal government moves to tighten mortgage access have successfully taken a lot of steam out of the overheated household sector.
“A concern of the Bank of Canada...has been the pace of growth of household debt, which has been related to dynamics in the housing market,” he told Freeland. “And so a number of measures have been taken to slow that pace" and the growth of household debt has cooled “quite nicely,” Carney said.
He also said he hopes Canada’s corporations will soon start investing more of the cash on their balance sheets — hundreds of billions of dollars he once called “dead money.”
The gradual pick-up of the U.S. economy, the availability of credit in Canada and other positive factors should soon convince Canada’s CEOs to start pumping more of their cash into new machinery and equipment, Carney said.
His remark about “dead money” last year was widely seen as a criticism of corporate Canada for not helping drive the economy back to post-recession health. But Carney said Thursday he only meant that not investing nullified the main objective of any corporation, which is increasing earnings. Otherwise, everyone would just keep their money under a mattress, Carney said.
He said if Canada is going to see its economy get back up to full potential, there will have to be an increase in business investment and a better export performance.
Carney said governments need to develop “bail-in” plans that take taxpayers off the hook if big banks fail. But he said the model should not be Cyprus, where large depositors are being forced to contribute to bank restructuring funds.
“Bail-in broadly speaking, not bail-in as it was performed a couple of weeks ago in Cyprus, but bail-in as a component of addressing systemic risk ... is an absolutely necessary element, it doesn’t solve everything but it’s absolutely necessary,” Carney said.
He also said the world’s central banks can help stabilize the world economy but cannot by themselves establish sustainable economic growth.
Carney, a 48-year-old former investment banker and federal finance department official, has rocketed into international prominence since taking over as head of the Bank of Canada in 2008. His role in the global efforts to cope with the 2008-09 financial meltdown and the credibility conferred on him by the resilience of Canada’s commercial banks during the crisis helped propel Carney into the top tier of international financial regulators.
In 2011, he was appointed head of the Financial Stability Board, an international body charged with strengthening the global banking system in the wake of the financial chaos that plunged the world into recession five years ago.
In November, Carney was named the next governor of the prestigious Bank of England.
With the global economy slowing growth in Canada, Carney has had to keep the Bank of Canada’s trend-setting rate at 1 per cent since September 2010 in hopes of spurring Canadian business activity. On Wednesday, in the bank’s last quarterly forecast under Carney’s leadership, it lowered its prediction for 2013, saying the economy will grow by a meager 1.5 per cent this year. This was well down from the 2 per cent expansion predicted only a few months ago.
Original Article
Source: thestar.com
Author: Les Whittington
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