By James Langton

(February 20 – 14:30 ET) – The new governor of the Bank of Canada, David Dodge, spoke to the Toronto Board of Trade today in his first public speech as governor. Dodge’s speech focused on the economy.

Dodge reiterated the bank’s projections for 3% growth this year. In its last Update to the Monetary Policy Report the bank lowered its projection for economic growth in Canada because of the abrupt weakening of U.S. economic activity.

“Despite the near-term uncertainties, the bank remains generally positive about Canada’s economic prospects for the year, given productivity increases and rising disposable incomes aided by tax cuts that are working to sustain domestic demand growth,” Dodge said. He added that some sectors will feel the slowdown more acutely, alluding to the Nortel Networks situation, but noting, “there will be generally solid growth in construction and services, and particularly strong growth in energy-related sectors.”

While the central bank is not changing its view Dodge said, “The bank will continue to monitor the evolving situation closely, and we will have more to say on the subject in the press release on our next fixed announcement date, March 6.”

In the remainder of his speech Dodge reiterated the bank’s commitment to pursue a policy of low, stable, and predictable inflation. “While low inflation is a necessary condition for good economic performance, it is not sufficient by itself. Other factors are also crucial. Clearly, it is very important that we all continue to work to improve the structure of our economy and the skills of our labour force, and to ensure that our product and labour markets operate efficiently,” Dodge said.

He also resolved to stick with a flexible exchange rate, noting that it is essential where interest rates are the primary mechanism of inflation control. “Inflation-control targets and a flexible exchange rate have worked well and continue to make sense for Canada in the foreseeable future.” Dodge stressed that the foreseeable future would extend beyond his term as governor.

Finally, Dodge stressed the importance of open, transparent monetary policy. “Central bank actions will likely be more successful if they are better understood and more predictable. Financial markets will then likely respond more effectively, and indeed anticipate, monetary policy actions. And the general public will be better able to take monetary policy into account when making plans for the future. Transparency actually leads to better policy outcomes.”