No need to further loosen credit: BoC deputy governor

The Bank of Canada’s deputy governor said the central bank has no plans to further ease up credit, even though small business owners face a tighter lending environment as the recovery progresses.

In a speech to the Levis Chamber of Commerce in Quebec on Monday, Bank of Canada Deputy Governor Pierre Duguay said small businesses will experiencing “some modest further tightening” in available credit.

BoC data taken from the Business Outlook Survey as well as the Senior Loan Officer suggest lending conditions for Canadian businesses began to improve in the second half of 2009, but that credit hasn’t flowed at an equal pace across the board.

Duguay’s notes show the central bank is willing to provide further monetary stimulus through quantitative and credit easing if necessary, but that “the need has not materialized.”

The deputy governor highlighted at least two other potential economic setbacks in his speech.

“There remains considerable excess supply in the Canadian economy,” Duguay’s notes read.

A chart accompanying the notes illustrates how Canadian firms responded to a recent BoC survey indicating a growing output gap for the final quarter of fiscal 2009.

Duguay also said the strength of the loonie and the low absolute level of U.S. demand will also continue to act as significant drags on economic activity.

Despite these and other potential roadblocks, the bank anticipates real Gross Domestic Product to grow by 2.9% in 2010 and by 3.5% in 2011. Canada’s economy contracted by 2.5% last year.

Duguay also repeated the bank’s commitment to keep its key interest rate at 0.25% until at least June, conditional on the behavior of inflation targeted at 2%.