Canada

Monday, June 17, 2019 - 14:30

MNI POLICY: Schembri: BOC to Keep Floating Dollar After Study


By Greg Quinn

OTTAWA (MNI) - The Bank of Canada will continue allowing the country's dollar to float after a 2021 review of its monetary policy framework, Deputy Governor Larry Schembri said.

"Canada and and many other open economies have been well-served by a market-determined flexible exchange rate," Schembri said Monday. The speech didn't give an outlook for the BOC's policy interest rate of 1.75% ahead of the next decision due July 10.

Canada was one of the first nations to adopt a formal inflation target in 1991 and hasn't intervened in currency markets in two decades. Most of the debate around the next five-year framework review has focused on the country's 2 percent CPI target.

The benefits of a floating currency "far exceed" any costs, Schembri said. While exporters and importers must deal with volatility in foreign exchange markets, those movements help Canada's economy adjust to shocks such as swings in commodity prices. Having a single inflation target also makes monetary policy clearer to investors.

Finally, a floating exchange rate helps Canada set an independent monetary policy. Canada is a major commodity exporter and the U.S. imports those products, meaning the economic cycles of the two nations can move in opposite directions, Schembri said.

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

[TOPICS: M$C$$$,MACDS$]

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