UPDATE 1-Bank of Canada sees encouraging economic scene despite forecasts

(Adds remarks about global, U.S., emerging economies; Canadian
housing market)
By Randall Palmer
LIMA, Oct 10 (Reuters) - Bank of Canada Governor Stephen
Poloz painted a reasonably cheery picture on Saturday of the
Canadian and global economic outlook despite some downgraded
forecasts and concerns about China.
He said it was "maybe an overstatement" to characterize as
gloomy the forecasts by the International Monetary Fund (IMF)
and the talk about them at the annual meetings in Peru of the
IMF and the World Bank.
And in Canada, he described confidence needed for business
investment as building.
"As we said in July, certain elements of that appear to be
coming together in the Canadian economy," he told three Canadian
reporters attending the IMF meetings.
He made his remarks shortly before the start of the central
bank's self-imposed blackout period for communications ahead of
the Oct 21 release of its interest rate decision and quarterly
Monetary Policy Report.
Poloz did not update the central bank's forecasts on
Saturday but appeared sanguine about prospects both in his
country and around the world.
"There are enough things that are on track that it still
remains an encouraging global picture," he said.
Poloz's outlook about the global economy, and especially the
United States, is critical because of his view that Canada needs
to transition its economic drivers from consumption and
government spending to exports and business investment.
He placed heavy emphasis on demand from U.S. business
investment, which he said got going a year ago and faltered over
the winter but seemed to have gotten back on track in the
spring.
Delegates to the IMF meetings have spoken a lot about
slowing Chinese demand and problems in emerging markets like
Brazil, but Poloz played down the troubles.
"China's going through, in historical terms, a fairly
typical moderation in headline growth which reflects a
maturation of its growth story," he said.
And for all the talk about potential trouble in
emerging-market nations, he said a wide array of them were in a
much stronger position than a decade ago, with accumulated
reserves, more flexibility of exchange rate regimes, and reforms
introduced.
"All of that suggests that there ought to be in some measure
more resilience out there," he said, adding that enhanced global
financial regulations would lessen the ramifications of a
possible shock.
Poloz acknowledged a key Canadian vulnerability was the
increasing level of high household debt, associated with a hot
housing market.
But he said that Canadian authorities had made "very timely"
macroprudential regulatory changes, such as reducing the
amortization period on insured mortgages, that had reduced risks
in the most vulnerable pockets of the housing markets.
Asked if the Canadian regulatory structure was appropriate,
he said: "It has been in the past quite responsive to the
situation. So I think the evidence in front of us is that it
works."
In a separate speech in Lima, he reiterated the bank's
position that monetary policy should be the last line of defense
against possible assets bubbles such as in the housing
market.
"Even in extreme conditions, when financial stability risks
constrain monetary policy from achieving the inflation target
over a reasonable time frame, a central bank would want to
ensure that all macroprudential options were exhausted before
trying to address those risks with monetary policy," he said.