OTTAWA, April 20 (Reuters) – The influence of upper U.S. rates of interest on the Canadian greenback just isn't a “main concern,” and the Financial institution of Canada (BoC) must react provided that there's a substantial depreciation of the loonie, Governor Tiff Macklem mentioned on Thursday.
Macklem, showing earlier than a Canadian Senate committee, was requested if the Federal Reserve's persevering with to boost charges may result in the weakening of the Canadian greenback and hinder the BoC's plan to tame excessive inflation.
Usually, larger charges in america than in Canada would strengthen the dollar over the loonie.
“That isn't a significant concern. Now we have an unbiased financial coverage, we've a versatile change charge,” Macklem instructed a Senate committee. In a floating change charge regime, a foreign money's degree is decided by provide and demand available in the market.
“It is one thing we'll must have in mind if the (Canadian) greenback have been to depreciate significantly,” Macklem mentioned.
The Canadian greenback has weakened about 11% towards its U.S. counterpart since June 2021, when inflation began to choose up, although year-to-date it's up 0.6% towards dollar.
The BoC raised charges at a document tempo over the previous yr to chill inflation, after which grew to become the primary main central financial institution to pause financial tightening. It has left its key coverage charge at a 15-year excessive of 4.50% at its final two policy-setting conferences.
The U.S. Federal Reserve, additionally combating excessive inflation, has continued elevating charges and is predicted to ship one other 25-basis-point hike in Could to take its key coverage charge to the 5.00%-5.25% vary, in accordance with Reuters' ballot of economists.
“The Canadian greenback, it has been fairly secure … and largely that displays the truth that the U.S. has additionally been elevating rates of interest very quickly,” Macklem mentioned.
“I do not see a giant downside if the U.S. goes somewhat larger than us. I believe that is form of already constructed into the market,” he mentioned.
Reporting by Ismail Shakil and Steve Scherer in Ottawa
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