Bank of Canada: Promoting Canadas Economic and Financial Well-Being - - PowerPoint PPT Presentation

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Bank of Canada: Promoting Canadas Economic and Financial Well-Being - - PowerPoint PPT Presentation

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Bank of Canada: Promoting Canadas Economic and Financial Well-Being Remarks to the Greater Sudbury Chamber of Commerce Sudbury , Ontario 10 February 2014 John Murray Deputy Governor Bank of Canada T able of Contents Bank of

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Bank of Canada: Promoting Canada’s Economic and Financial Well-Being

Remarks to the Greater Sudbury Chamber of Commerce Sudbury , Ontario 10 February 2014

John Murray Deputy Governor Bank of Canada

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T able of Contents

  • Bank of Canada’s mandate
  • Four main activities
  • Economic outlook
  • Introduction of Bank of Canada Regional Directors and

representatives

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Mandate

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Mandate

The Bank of Canada’s mandate is to contribute to the economic and financial well-being of Canadians We do this by:

  • aiming to keep inflation low, stable, and predictable
  • promoting a stable and efficient financial system
  • supplying secure, quality bank notes
  • providing banking services to the federal government and key

financial system players

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The Bank’s approach

In each of these four core areas, we follow the same consistent approach:

  • a clear objective
  • accountability and transparency
  • a longer-term perspective
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Key responsibilities: Monetary policy

Our objective: T

  • foster confidence in the value of money by

keeping inflation at or near the 2 per cent inflation target This is important because:

  • it allows consumers, businesses, and investors to read price

signals clearly, and to make financial decisions with confidence

  • it reduces the inequity associated with arbitrary redistributions of

income caused by unexpected changes in inflation

  • it also makes the economy more resilient to shocks and

enhances the effectiveness of monetary policy

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Monetary policy: Low and stable inflation

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1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

  • 2

2 4 6 8 10 12 14 % Inflation target CPI

12-month rate of increase, monthly data

Sources: Statistics Canada and Bank of Canada calculations Last observation: December 2013

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Central bank policy rates dropped to historic lows during the recession

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2008 2009 2010 2011 2012 2013 2014 0.0 1.0 2.0 3.0 4.0 5.0 % Canada United States Euro area Japan

Policy interest rates, daily data

Last observation: 31 January 2014 Sources: Bank of Canada, U.S. Federal Reserve, European Central Bank and Bank of Japan

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Key responsibilities: Financial system

Our objective: T

  • promote the stability and efficiency of the

financial system, in Canada and globally Canada’s financial system consists of:

  • financial institutions, such as banks, caisses populaires,

insurance companies

  • financial markets, including securities and foreign exchange

markets

  • clearing and settlement arrangements

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Ensuring a stable and efficient financial system

The Bank promotes the stability and efficiency of the Canadian financial system by:

  • providing liquidity
  • overseeing key domestic payment, clearing and settlement

systems

  • participating in the development of financial system policies in

Canada and globally

  • assessing risks to the overall stability of the financial system
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Extraordinary liquidity support in response to the crisis

Dec 07 Mar 08 Jun 08 Sep 08 Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 Sep 10 Dec 10 5 10 15 20 25 30 35 40 45 Can$ billions

Term Loan Facility Term PRA for Private Sector Instruments Term PRA

Weekly par value outstanding at Bank of Canada facilities

Last observation: 30 December 2010 Source: Bank of Canada

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Term PRA for private sector instruments

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Bank of Canada yield curve expectations declined after conditional commitment was announced

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Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 % OIS curve as of 04/20/2009 OIS curve as of 04/21/2009

OIS curve 0 to 2 years, the day before and day of the announcement of the conditional commitment

Last observation: April 2011 Note: On 21 April 2009, the Bank of Canada announced a commitment to hold the policy rate at 0.25 per cent until the end of 2010Q2. Source: Bloomberg

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Key responsibilities: Currency

  • Bank notes are the central bank’s most tangible product
  • The Bank of Canada is responsible for ensuring that notes are

readily accepted and secure from counterfeiting

  • Our anti-counterfeiting goal: fewer than 30 counterfeits

detected annually per million notes in circulation

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Secure, quality bank notes

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100 100 100 50 50 50 30 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 50 100 150 200 250 300 350 400 450 500 PPM PPM MTP Target Max PPM

Number of counterfeits detected per million genuine notes in circulation

Last observation: 31 December 2013 Note: CJ = Canadian Journey series. Data are from CUR-MIS database. Source: Bank of Canada

Polymer series CJ $10 (Jan/01) CJ $5 (Mar/02) CJ $100 (Mar/04) CJ $20 (Sept/04) CJ $50 (Nov/04) Upgraded CJ $10 (May/05) Upgraded CJ $5 (Nov/06)

Parts per million Target maximum parts per million

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New series of bank notes

  • Launched new Polymer series of bank notes—Frontiers
  • November 2011—new $100
  • March 2012—new $50
  • November 2013—new $5 and $10
  • Polymer notes have sophisticated security elements, including

transparency and holography

  • Smaller environmental footprint: bills will last 2.5 times longer

than cotton-based paper and can be recycled

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Transparent, holographic polymer bank notes

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Key responsibilities: Funds management

Our objective: T

  • provide effective banking services to the

federal government and key financial system players. This involves:

  • managing Canada’s foreign exchange reserves and federal

government’s cash balance

  • managing the public debt in collaboration with the Department
  • f Finance
  • administering the Canada Savings Bonds program
  • providing the means of final settlement of daily flows of

payments among financial institutions

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Debt management

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Key objectives

  • Raise stable and low-cost

funding to meet the financial needs of the Government of Canada

  • Maintain a well-functioning

market in Government of Canada securities Government of Canada debt 31 December 2013

Nominal bonds 65% $433 billion Treasury bills 26% $171 billion Real return bonds 7% $45.9 billion Retail debt 1% $6.9 billion Foreign-currency Denominated debt 2% $11.8 billion

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Economic Outlook

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Global economic growth

  • Global growth is expected to strengthen over the next two

years, rising from 2.9 per cent in 2013 to 3.4 per cent in 2014 and 3.7 per cent in 2015.

  • The United States will lead this acceleration, aided by

diminishing fiscal drag, accommodative monetary policy and stronger household balance sheets.

  • The improving U.S. outlook is affecting global bond, equity,

and currency markets.

  • Global trade growth plunged after 2011, but is poised to

recover as global demand strengthens.

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The United States is expected to lead the strengthening in global economic growth

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2013 2014 2015

  • 1.0
  • 0.5

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 % Euro area Japan United States

Real GDP growth, annual data

Last observation: p

Source: Bank of Canada projections

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T able 1: Projection for global economic growth

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The composition of growth in the Canadian economy is expected to broaden

  • The Canadian economy is still adjusting to two shocks: the financial

crisis and higher prices of many commodities that we export.

  • The strengthening of the global economy and depreciation of the

Canadian dollar should foster a broadening of the composition of growth in Canada.

  • Real GDP growth is projected to pick up from 1.8 per cent in 2013 to

2.5 per cent in both 2014 and 2015, with the economy returning gradually to capacity over the next two years.

  • The Bank expects inflation to return to the 2 per cent target in about

two years, as the effects of retail competition dissipate and excess capacity is absorbed.

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Shock 1: U.S. Great Recession

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 12 13 14 15 16 US$ trillions U.S. GDP

Chained 2009 U.S. dollars, quarterly data

Last observation: 2013Q4 Sources: U.S. Bureau of Economic Analysis and Bank of Canada calculations

Great Recession 2001 recession

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Shock 2: Canada’s terms of trade are much higher than 1990s average

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2000 2002 2004 2006 2008 2010 2012 75 80 85 90 95 100 105 110 Index Terms of trade 1990s average Post-crisis average

Index: 2007 = 100, quarterly data

Last observation: 2013Q3 Sources: Statistics Canada and Bank of Canada calculations

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Demand is expected to become more broadly based

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2010 2011 2012 2013 2014 2015

  • 4
  • 3
  • 2
  • 1

1 2 3 4 5 6 7

  • 4
  • 3
  • 2
  • 1

1 2 3 4 5 6 7 Percentage points Business fixed investment (right scale) Other components of GDP (right scale) Net exports (right scale) GDP growth, at annual rates (left scale)

Contributions to real GDP growth; 4-quarter moving average

Sources: Statistics Canada and Bank of Canada calculations and projections

%

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CPI inflation is subdued and expected to return slowly to target

  • 2
  • 1

1 2 3 4 2007 2008 2009 2010 2011 2012 2013 2014 2015 % Total CPI Core CPI* Target Control range

Year-over-year percentage change, quarterly data

*CPI excluding eight of the most volatile components and the effect of changes in indirect taxes on the remaining components Sources: Statistics Canada and Bank of Canada calculations and projections

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Economic outlook: Ontario

  • Ontario GDP grew modestly at 1.3 per cent in 2013. Growth started
  • ff weakly but strengthened through the year.
  • In 2013, consumption growth was solid, exports contributed to GDP

growth and non-residential investment stopped declining.

  • On the downside, a decline in residential investment that began in

the second quarter, accelerated towards year-end. Housing starts have fallen markedly and were down 21 per cent in 2013.

  • GDP growth is expected to accelerate to 2.3 per cent in 2014,

according to the average forecast of private-sector economists.

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GDP growth in Ontario

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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

  • 4.0
  • 3.0
  • 2.0
  • 1.0

0.0 1.0 2.0 3.0 4.0

GDP growth: Ontario

Sources: Statistics Canada and mean of private sector forecast

Annual GDP growth, per cent

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Your Bank of Canada Directors

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Philip Deck

Board Member Board of Directors

Claire Kennedy

Board Member Board of Directors

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Your Bank of Canada regional representatives

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Jane Voll Senior Regional Representative (Economics) Toronto Manuel Parreira Senior Regional Representative (Currency) Toronto Agency Operations Centre

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Thank you

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