OTTAWA – Bank of Canada governor Mark Carney is playing down the impact of any interest rate hikes he may be planning.
Speaking to a Senate finance committee Wednesday, Carney went to lengths to suggest any rate changes would be modest, given the fragile nature of the global and Canadian economies.
The bank governor was put to the test by a question that suggested his warnings, and that of Finance Minister Jim Flaherty, about rising rates were causing consumers to rethink purchases.
Last week, the Bank of Canada hinted it was preparing to hike its trendsetting overnight rate from one per cent for the first time since September 2010.
“Monetary policy is exceptionally accommodative in Canada, it has been for some time,” he responded.
“I wouldn’t characterize the possibility … that it may become necessary that some of the considerable policy stimulus in Canada may need to be withdrawn … as hitting the consumer with a two-by-four,” he added, repeating a description used by Ottawa-area Senator Mac Herb.
Carney was testifying before a parliamentary committee for the second straight day after the release of the central bank’s latest forecast for the economy, calling for growth of 2.4 per cent in 2012 and 2013.
The nearly two-hour testimony covered a wide range of topics, including the challenges facing business given the changing dynamics of the global economy and the state of the Canadian labour market.
As he did in a much-quoted speech in Kitchener-Waterloo, Ont., earlier this month, Carney warned Canadian businesses will need to undergo a major transformation as they gear their operations to fast-growing emerging markets in Asia and South America.
The exploitation of natural resources will play an increasingly important role in the economy, he said, but that doesn’t necessarily mean hollowing out Canada’s manufacturing hub. He noted that one-twelfth of manufacturing input for the Alberta oil sands comes from Ontario.
Firms will need to become more competitive, he said, and governments can play a role by demanding better performance when they hand out procurement contracts.
Carney said Canadian businesses have proved flexible in the past.
“There will be adjustment no doubt,” he said.
“(But) even with the losses of jobs in manufacturing we have seen over the course of the decade, there has been net job creation in the country — 80 per cent have been private sector and the vast majority have been in jobs that pay higher than manufacturing.”
On the current employment climate in Canada, Carney said while there are pockets of skilled labour shortages in the west and other regions, overall there remains “considerable slack” in the Canadian job market.
Governments, he said, can help by offering training and removing the barriers to prevent unemployed workers from moving to where the jobs are.