Bank of Canada official questions U.S. Fed tracking on rates – National

The Bank of Canada will make its own interest rate decisions and will not be influenced by policymakers beyond Canada’s borders, a senior official said Thursday, a day after the central bank held its key rate steady. for the first time in over a year.

Senior Deputy Governor Carolyn Rogers affirmed the independence of the Bank of Canada to set its own course on interest rates during a speech to a crowd of businessmen in Winnipeg.

His comments come as the US Federal Reserve has signaled that its own key rate may need to rise more than expected. Economists have flagged the Canadian dollar’s vulnerability if the Bank of Canada lags its US counterpart as a possible risk to the outlook for inflation and the broader economy.

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But Rogers said Bank of Canada policymakers will decide its rate trajectory based on the Canadian context, not what central banks are doing beyond its borders.

“The world’s major economies are highly interconnected, but while we always think globally, we must act locally. We need to adapt our policy to Canadian circumstances,” she said, according to her prepared remarks.

“Canada, like other countries, has unique circumstances that will affect the path of the economy and inflation. But that’s the advantage of independent monetary policy: we can get back to our 2% inflation target in a way that makes sense to us, just as other central banks do to them.

Rogers was asked after her speech about pressure to keep pace with the Fed and acknowledged that what happens in the U.S. economy will inevitably have knock-on effects in Canada that the central bank may have to deal with.

She said that while the Bank of Canada does not target Canadian dollar exchange rates against any other currency in its policy decisions, anything that lowers the outlook for the loonie could impact the inflation outlook for the country. central bank.

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“If our dollar depreciates, especially against the currencies of our main trading partners, it means that imports entering the country are more expensive. This can put upward pressure on inflation,” she said.

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“If that happens, that will have to be factored into our forecast.”

The Bank of Canada maintained its key rate at 4.5% on Wednesday after eight consecutive increases over the past year. It maintained its wait-and-see attitude on rates and left the door open to future increases if inflation does not fall according to its forecasts.

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Rogers said despite the headline decline in inflation recently, service price pressures in Canada will still need to ease before inflation returns to the central bank’s target.

While she said the Bank of Canada expects the tight labor market to ease in the coming months, she signaled that labor productivity was not moving in the right direction.

“Productivity growth is important because it helps companies pay higher wages,” she said.

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“If we continue to see the above-average wage growth we’ve seen in Canada without stronger productivity growth, it will be difficult to bring inflation down to 2%.

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