UPDATE 3-Governments, central banks need to coordinate -Bank of Canada

(Adds quote from news conference)
By David Ljunggren
OTTAWA, June 4 (Reuters) - Governments and central banks
need a certain amount of coordination so they can discuss
policies and consider the implications on debt levels and
financial stability over the medium-term, Bank of Canada
Governor Stephen Poloz said on Saturday.
One good example was Canada's 2 percent inflation target,
which is jointly set between the federal government and the
central bank, he said in a lecture to the Canadian Economics
Association in Ottawa.
"Policy coordination around an agreed goal seems to hold out
more promise than seeking some optimality condition," he said.
Coordination was important since there were limits to how
much government debt and private sector debt financial markets
would tolerate, he added.
"A tight monetary/easy fiscal policy mix means a relatively
slow accumulation of private sector debts and relatively rapid
accumulation of fiscal debt. An easy monetary/tight fiscal
policy mix would deliver the opposite dynamic," he said.
"Either dynamic can eventually give rise to financial
stability risks," he said. "There is a meaningful trade-off in
the policy space between the medium-term consequences for debt
of monetary and fiscal policies."
Poloz made clear he was not urging governments or central
banks to take any particular mix of policy actions, saying that
depended on specific circumstances.
He spoke against the backdrop of a Canadian economy that has
been hamstrung by weak crude prices. The Bank of Canada cut
interest rates twice last year to afford the economy some
protection.
Poloz later said that as interest rates approached zero,
cutting them further had a smaller effect. That said,
maintaining high levels of stimulus was the right thing to do
given the challenges facing the global economy.
"I've no doubt ... those headwinds are easing, but they are
still there, which is to say monetary policy is still having a
big effect," he told reporters.
The Bank of Canada says Canada's recovery should benefit
from a stronger economy in the United States, which takes 75
percent of all Canadian exports. Poloz expressed some surprise
at weak U.S. job numbers released on Friday, but said U.S. data
this year had been "all pretty good."
In a question and answer session, Poloz said that adding
even 0.1 or 0.2 percentage points to economic growth was "a huge
deal."
In a bid to boost weak growth, Finance Minister Bill Morneau
unveiled a stimulus-rich budget in March, running up a much
larger deficit than initially promised.