The central bank's often-repeated message that interest rates are likely to rise, coupled with persistent warnings from the Bank of Canada about growing household debt levels, has resulted in Canadians taking action, Carney said.
Carney noted that the share of new fixed-rate mortgages has almost doubled to 90 per cent this year as Canadians shy away from gambling on taking out traditionally cheaper variable-rate mortgages. He credits that shift to 'the combination of attractively priced fixed-rate mortgages and the tightening bias of the Bank of Canada."
The central bank's current guidance on monetary policy suggests that it may be necessary to raise interest rates modestly at some point in the future.
Carney offered no hints about when the next increase in the central bank's key overnight lending rate might take place; it's been at one per cent for more than two years. He reminded his audience that his speech was about policy guidance, rather than an attempt to provide new guidance.
"Our current guidance indicates that some policy action may be necessary, encouraging a degree of prudence in household borrowing," he said in a speech to financial analysts in Toronto. But he said he has already seen some encouraging signs.
"We've seen some adjustments in the resale market, which again is positive," he added in later remarks."We've seen [housing] starts coming down... we're seeing some overbuilding still in condos. We have seen the pace of household debt accumulation slow, as intended, from about 10 per cent to a bit more than four per cent."
"But I would caution we have seen in the past, when there have been policy measures taken, movement in these variables that are then followed by a re-acceleration," he said.
Guidance should normally be 'sparing'
Carney said the central bank has found that financial markets and consumers alike appreciate some transparency about future interest rate moves. But he said too much transparency can backfire if conditions change and the policy direction needs to unwind.
That's why, under normal circumstances, the Bank of Canada thinks it's appropriate to be "sparing" when providing forward policy guidance, he said. The situation changes, however, when times are not normal.
During the financial crisis of April 2009, for instance, the Bank of Canada took the rare move of providing a specific commitment to hold its key interest rate at a rock-bottom low of 0.25 per cent for more than a year, depending on the inflation outlook.
"The bank's conditional commitment succeeded in changing market expectations of the future path of interest rates, providing the desired stimulus and thereby underpinning a rebound in growth and inflation in Canada," he said.
Carney's message that more explicit policy guidance may be most useful when times are extraordinary could be seen as a timely reference to the current situation in Britain, where the slumping economy risks slipping into its third recession since 2008. Carney will take over as governor of the Bank of England in mid-2013.