加央行行长声称房贷利率仍保持低水平

Central banks kept rates too low: Dodge

HEATHER SCOFFIELD Globe and Mail Update September 25, 2007 at 4:28 PM EDT

Ottawa — The world's central bankers failed to realize the magnitude of the easy money made available over the past few years through sophisticated loans and derivatives, Bank of Canada Governor David Dodge says.

As a result, central banks kept interest rates too low, he said in a speech that dissected the ongoing global credit crunch.

“It seems to me that in recent years, central bankers may not have fully appreciated just how much the increase in securitization represented an easing of credit conditions,” Mr. Dodge told the Vancouver Board of Trade. “Any given policy rate would thus be less restrictive than was earlier judged, implying that interest rates globally might have been lower than would have been optimal.”

But Mr. Dodge was reluctant to give many clues about where interest rates should be heading now, with credit conditions much tighter and the Canadian dollar far stronger than just a couple of months ago.

While the overnight market and some money markets in Canada are stabilizing, not all markets are functioning normally yet, he said, adding that the re-pricing of risk is not over.

“While it is true that many term money market spreads remain abnormally wide, the market is functioning,” Mr. Dodge said. “There have been increasing numbers of transactions in this area and spreads are beginning to narrow.”

The turmoil, along with the tighter credit conditions such turmoil brings, will take a toll on Canadian borrowers, he warned. Still, he wouldn't put any numbers to his warning, saying a more detailed assessment would come in October.

The turbulence “should temper the growth of domestic demand, although the extent of this effect is difficult to assess,” he said.

He pointed out “significant” risks to the economic outlook, and most of the risks he mentioned were negative for the economy: the U.S. housing slump, the spillover of the housing slump to the broader economy, the strong Canadian dollar, and the dragging on of the credit crunch.

Mr. Dodge repeated his call for more transparency in financial markets, and urged investors to do their homework.

But he advised rule-makers to avoid imposing new rules on credit-rating agencies, saying the market will no doubt force such agencies to be more transparent.

Rather, he said policy makers should look to the banks and other lenders, to force them to be more transparent.

“Since the [loan] originators were immune from default risk once the loan was securitized and sold, they often lacked the proper incentives to adequately assess the creditworthiness of the borrower,” he said. “We need to think hard about how to get the incentives right.”

Also, banks should perhaps be forced to set aside more capital to cover off risks involved in securitized loans they are not officially carrying on their balance sheets, he said.