Canada

Thursday, December 5, 2019 - 08:00

MNI POLICY: Lane: BOC `Charting Our Own Course' Amid Fed Cuts


By Greg Quinn

OTTAWA (MNI) - Bank of Canada Deputy Governor Tim Lane said there is "no reason" to follow Fed rate cuts because domestic spending has held strong amid global trade wars.

The economy is close to full capacity and inflation will temporarily move above the BOC's 2% target next year on gasoline prices, Lane said Thursday. Business investment has been surprisingly strong and wage gains are helping consumer spending, signs growth will pick up again after being slowed by a drop in exports in the third quarter.

The speech "Charting Our Own Course" defended keeping one of the world's highest policy rates as the Fed cut three times while Japan and Europe dive further into extraordinary stimulus. Canada's dollar surged Wednesday as the BOC held its 1.75% rate citing signs the global economy is stabilizing, leading investors to cancel some bets Canada would join the rate-cut cycle next year.

"There is no reason for the Bank of Canada to move in step with the Fed," Lane said in the text of a speech he's giving in Ottawa. "The tone of developments in recent weeks gives us more confidence in the outlook for growth and inflation."

Future actions will consider trade risks and "sources of resilience" in domestic spending, he said. Damage to exports and business spending remains the biggest risk to the outlook, but that must be weighed against strains in household finances through a housing boom that is showing signs of life again.

Recent news on trade has been "mixed" and uncertainty will persist even if the U.S. and China come to an agreement, Lane said. "Although a global recession is not in our baseline forecast, questions remain about whether market pricing fully reflects the risks inherent in the current global situation," he said.

"Canada also has notable strengths, and inflation remains on target," Lane said. "It is because of this strength amid the turmoil that we say Canada is resilient, although it is not immune. This resilience has helped the Bank of Canada chart its own course in monetary policy."

--MNI Ottawa Bureau, +1-613-314-9647, greg.quinn@marketnews.com

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