Bank of Canada's Carney still leaning towards rate hike

OTTAWA (Reuters) - Bank of Canada Governor Mark Carney argued the case for raising interest rates in an interview with the BBC in London on Wednesday, even though he said a global slowdown was having an impact on his country's economy.

The central bank chief has been swimming against the global current since April with his message that borrowing costs will soon have to rise in Canada. Policy makers in most other major economies are looking for ways to stimulate their economies further amid the European debt crisis, and disappointing growth in the United States and China.

"We're in a very different place than the major crisis economies, such as the U.K.," Carney said, according to a transcript of the interview.

"Our economy's almost back at full capacity, the labor market's been growing, we're growing above -- we had been growing above trend, and the extent to which we continue to grow above trend, we may withdraw some of that monetary policy stimulus."

In remarks that were similar to those he made last month in defense of his hawkish stance, he said the current benchmark interest rate of 1.0 percent was "very low".

"But we have a financial system that's firing on all cylinders and so we will have to adjust -- we will adjust if it's appropriate," he said.

In a new twist, Carney also said the Bank of Canada could act to help cool the red-hot housing market if needed.

In a separate interview with CTV on Wednesday, he suggested months of dire warnings that Canadians were piling on too much debt was starting to pay off. The pace of growth in household debt is slowing and the housing market is cooling.

"I think an adjustment is beginning in the Canadian housing market," Carney told CTV.

Still, policy makers are monitoring the situation closely. "If additional steps are required, including by the bank, we will take them," he added.

Market players believe Carney's next move will be a hike, but they don't think he's in any rush. The median forecast of primary dealers surveyed by Reuters last month was for a first quarter-point increase in the third quarter of next year.

VERY DANGEROUS PLACE

Carney conceded that the world was still a "very dangerous place" and that slowing growth in major emerging economies like China had caused market prices for Canadian exports like oil and other commodities to drop 15 percent over the last several months, though they remain above historic averages.

But the country's relatively strong economic fundamentals helped push the Canadian dollar to parity with the U.S. dollar on Friday for the first time since May.

Carney said the currency's value reflected a "safe-haven premium". "There are relatively few places in the advanced world that investors can put their money with a degree of certainty that something catastrophic is not going to happen," he said.

Such is Canada's reputation that there has been speculation in England that Carney himself might succeed Mervyn King as governor of the Bank of England next year. Carney ruled out that possibility though.

"I'm very focused on my post at the Bank of Canada and the Financial Stability Board, and I look forward to working with the new or the next Governor of the Bank of England," he said.

When asked whether his answer meant he would never consider the job, Carney answered, "Yes."

DEFENDING DRAGHI

Carney, who also chairs the Financial Stability Board (FSB) - a G20 body that oversees global financial reform - weighed in on the European debt crisis by defending European Central Bank President Mario Draghi.

Draghi disappointed financial markets earlier this month with what critics viewed as lack of action on a bold pledge delivered in late July to do whatever it takes to preserve the euro.

The pledge had fueled expectations the ECB could revive its bond purchase program to reduce crippling Spanish and Italian borrowing costs. But on August 2 Draghi put conditions on any such measures and said any intervention would not come before September.

"I think the market misread exactly what Mario Draghi announced a week later, a re-evaluation is underway in the markets of that," Carney said. "This is a big shift in the way the ECB is addressing the crisis."

"The idea the countries would pay more for their debts because of the possibility that the euro will not exist, the ECB is standing in there and saying, no, we're going to stand against that and we're going to use all their firepower for it, and that is a major shift," Carney said.

(Editing by Jeffrey Hodgson)

Source: http://news.yahoo.com/bank-canadas-carney-says-housing-market-starting-cool-021856367--business.html

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