Top Bank of Canada officials speak after rate decision

TORONTO (Reuters) - Below are some key quotes from a news conference by the Bank of Canada Governor Tiff Macklem and Senior Deputy Governor Carolyn Rogers on Wednesday after the central bank held key interest rate at 5%.

MACKLEM ON GOVERNMENT SPENDING

"For next year, we expect (provincial and federal) government spending to grow at about 2.5%. If all those spending plans are realized, government spending will be adding to demand more than supply is growing and in an environment where we're trying to moderate spending and get inflation down, that's not helpful."

ROGERS ON HOUSING SUPPLY

"Until we address that (housing) supply issue, interest rates on their own are not going to help us get back to a housing affordability situation or solution. So we're really pleased to see the degree of focus that governments are putting on this issue right now."

MACKLEM ON NEGATIVE GROWTH

"We're expecting growth below 1% for the next three, four quarters ... If you're predicting low positive growth, you can't rule out that - we're talking about small positive numbers - you can't rule out we're going to get some small negative numbers. So there could certainly be two or three small negative quarters."

MACKLEM ON RECESSION, SOFT LANDING

"When people say the word recession, I think what they have in mind is a steep contraction in output and a large rise in unemployment. That's not what we're forecasting."

"The path to a soft landing is narrow, and in this projection, that path has gotten narrower."

ROGERS ON HIGHER BOND YIELDS

"We've seen bond yields particularly at the long end increase pretty sharply recently."

"There's a number of factors that are contributing to that. Certainly I think the markets are adjusting to the fact that inflation is looking sticky in the prospect that rates are going to need to be higher for longer, is coming into how they're pricing yields at the long end."

"There's also some structural elements, the U.S. deficit means there's a lot more bonds being issued in the US market, increased supply has to be absorbed, which is going to push prices up a bit."

"There's term premium the markets are demanding, higher rates for longer, term assets and also for the volatility. So market conditions are an important input but they're not a determinant to our price decisions. They've definitely come in they're one of the inputs we use, but they're one of many."

MACKLEM ON MIDDLE EAST CONFLICT, ENERGY PRICES

"I'm no military expert, but it's clear there are risks that tension in the Middle East could escalate and you could see an even bigger increase in prices."

"Inflation has been above the target for two years, inflation expectations, near term inflation expectations are still above the target ... against that environment, we would need to be more cautious than normal about seeing through it (in higher energy prices) and what we'd be particularly focused on is the impacts on core inflation."

"If we saw evidence that higher energy prices were passing through to broader prices because of higher transportation costs, for example, that would be a signal that increase in oil prices is starting to feed through to the rest of the economy and that would really be something of concern to us."

MACKLEM ON MOVEMENT IN THE CANADIAN DOLLAR

"What is a bit unusual through this tightening cycle that we've been through is that normally when we raise interest rates a lot that causes the exchange rate to appreciate. That helps slow foreign demand for Canadian products. And it also has a direct effect - it reduces inflation in import prices. So because we've been moving rates up in a roughly similar fashion to other central banks, particularly the Fed, what you've seen is that the Canadian dollar has been reasonably stable - down a little bit against the U.S. dollar, up against most other currencies."

MACKLEM ON IMPORT INFLATION

"Because the U.S. is raising rates a lot, that is restraining demand for Canadian exports. So we are getting that part of the effect. What we're not getting is, we're not getting the direct affect of an appreciation (of the Canadian dollar) to lower import inflation."

MACKLEM ON RELYING ON INTEREST RATE HIKES RATHER THAN CURRENCY APPRECIATION TO TACKLE INFLATION

"So that does mean, everything else equal, we've got to rely more on interest rates (than appreciation of the Canadian dollar). So that is something we've had to take into account."

(Reporting by Fergal Smith, Ismail Shakil, Nivedita Balu; Compiled by Denny Thomas)