By Ismail Shakil
OTTAWA (Reuters) – The affect of rising U.S. rates of interest on the Canadian greenback just isn’t a “main concern” and the Financial institution of Canada (BoC) would solely must react within the occasion of a considerable depreciation du , Gov. Tiff Macklem mentioned Thursday.
Macklem, showing earlier than a Canadian Senate committee, was requested if the Federal Reserve’s continued price hikes might trigger the Canadian greenback to weaken and hamper the Financial institution of Canada’s plan to rein in excessive inflation.
Sometimes, increased charges within the US than in Canada would strengthen the buck in opposition to the loonie.
“It is not a significant concern. We now have an unbiased financial coverage, we have now a versatile change price,” Macklem informed a Senate committee. In a floating change price regime, the extent of a foreign money is decided by provide and demand out there.
“That is one thing we’ll have to contemplate if the (Canadian) greenback have been to depreciate considerably,” Macklem mentioned.
The Canadian greenback has weakened by round 11% in opposition to its US counterpart since June 2021, when inflation started to rise, though year-to-date it’s up 0.6% in opposition to the buck.
The Financial institution of Canada raised charges at a document tempo over the previous 12 months to calm inflation, then grew to become the primary main central financial institution to droop financial tightening. It left its key price at 4.50%, its highest stage in 15 years, throughout its final two policymaking conferences.
The US Federal Reserve, which can also be battling excessive inflation, has continued to boost charges and is anticipated to hike one other 25 foundation factors in Could to convey its key price to the 5.00% to five.25 vary. %, in line with a survey of economists by Reuters. .
“The Canadian greenback, it has been moderately steady…and a number of that displays the truth that the USA has been elevating rates of interest in a short time as nicely,” Macklem mentioned.
“I do not see a giant drawback if the USA goes somewhat increased than us. I feel it is type of already priced into the market,” he mentioned.
