Reuters: US Dollar Report: UPDATE 1-Bank of Canada still signals higher rates possible

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UPDATE 1-Bank of Canada still signals higher rates possible Jun 21st 2012, 15:47 Thu Jun 21, 2012 11:47am EDT * Hawkish stance contrasts with U.S. Fed * Says economy can't depend on debt-fueled spending * Repeats monetary stimulus may have to be withdrawn * Sees continued absorption of small degree of slack HALIFAX, Nova Scotia, June 21 (Reuters) - The Bank of Canada continued to signal on Thursday the possibility that it will raise rates, warning of the dangers of high household debt, in contrast to the U.S. Federal Reserve's delivery of another round of monetary stimulus on Wednesday. Governor Mark Carney said that despite "ongoing global headwinds," Canada continued to gradually absorb the small degree of slack that remains in its economy, with resilient household spending supported by "very accommodative monetary policy". "Our economy cannot, however, depend indefinitely on debt-fueled household expenditures, particularly in an environment of modest income growth," Carney said in the prepared text of a speech in Halifax, Nova Scotia. He said housing investment rose further in the first quarter, accounting for an unusually elevated share of the overall economy. He noted with approval the government's tightening of mortgage rules earlier on Thursday. "Against this backdrop, to the extent that the economic expansion continues and the current excess supply in the economy is gradually absorbed, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate, consistent with achieving the 2 percent inflation target over the medium term," Carney said. He echoed language used on June 5, when the bank held its key rate at 1 percent. As usual, he gave no time frame for a possible rate hike. Analysts in a Reuters poll released on May 30 forecast the bank would resume rate hikes in the first quarter of 2013, while markets, contrarily, are pricing in the chance of a rate cut by the end of this year. Carney attended a Group of 20 summit this week in Mexico, where leaders focused on the euro crisis. He said on Thursday the risks of the crisis were materializing and threatening to slow global growth. The U.S. economy is expanding at a modest pace, he said, but weak demand in industrialized countries is slowing the pace of expansion in China and other emerging economies that are the engine of global growth Canada, nonetheless, has had a relatively favorable economic performance, he added. Link this Share this Digg this Email Reprints

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