MONTREAL, Sept. 25 /CNW Telbec/ - The world is grappling with dramatic
events that have seized up markets, sparked a massive flight to quality and
caused some great names in the world of finance to succumb, Bank of Canada
Governor Mark Carney said today. But, he argues, the turmoil may be cathartic
in restructuring markets, prompting decisive policy responses and speeding the
reordering of the financial system to make the world more stable. He concludes
that Canada's financial system is well positioned to weather this financial
storm because it has been prudent and soundly capitalized.
In a speech to the Canadian Club of Montreal, Governor Carney outlined
how the upheaval in global financial markets and the slowdown in the U.S.
economy have been important international factors affecting the Canadian
economy. High global commodity prices have benefited the Canadian economy,
Governor Carney said, noting that continued volatility in commodity prices can
Governor Carney said that global markets are now at a critical juncture.
Many foreign financial institutions need to raise capital, but their ability
to do so has been reduced. "In this environment, the U.S. government's
initiative to buy distressed assets is critically important. The plan
announced by Treasury Secretary Paulson and being developed through
discussions in the U.S. Congress is bold and timely," he said. Outside Canada,
he reflected, it may be necessary for other countries to follow suit with
public capital to complete the necessary deleveraging process.
The Governor stressed that Canadian financial institutions "are in
considerably better shape than their international peers," which has allowed
credit growth to remain strong in Canada. He also detailed the actions taken
by the Bank of Canada to ease strains in Canadian financial markets and
saluted international efforts, stressing that the G-7 "is ready to take
whatever actions may be necessary, individually and collectively, to ensure
the stability of the international financial system."
Governor Carney noted that the nature of the slowdown in the U.S. economy
- with weakness in the housing and auto sectors - poses particular problems
for Canadian exports. In addition, with credit conditions tightening, "a fall
in U.S. domestic demand seems likely," he said. The recent further weakness in
the U.S. financial sector has made the risk that the U.S. economic recovery
will be delayed more probable.
In conclusion, Governor Carney cautioned that while international events
will have an important influence on our economy, "they must be considered in
tandem with domestic factors, including the strength of domestic demand, the
evolution of potential growth and the health of our financial system." The
Governor added that the Bank of Canada will continue to monitor economic and
financial developments carefully and "will continue to set monetary policy
consistent with achieving the 2 per cent inflation target over the medium
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