The Globe and Mail reports in its Thursday edition that the Bank of Canada seems intent on ignoring the raging Canadian dollar. The Globe's David Parkinson writes that on Wednesday the bank addressed the usual suspects influencing its economic outlook and the path of monetary policy. It was only as an aside, that the BOC mentioned the dollar. When BOC Governor Tiff Macklem was asked about the currency in mid-May, he characterized the rise as justified by rising prices for Canada's commodity exports.
The two biggest concerns standing in the path of the BOC's monetary policy are the pace of inflation and economic growth.
A strong Canadian dollar leans against growth in export-oriented segments of the economy, acting as a brake on the surging demand from foreign markets. At the same time, the currency gains serve to reduce the cost of imports for Canadian buyers.
The higher dollar can, in broad terms, achieve some of the same goals as an interest-rate increase -- without the rate increase. The central bank has long talked about the country's flexible exchange rate as a natural shock absorber in such times. Maybe the wisest thing for Mr. Macklem to do right now is keep quiet and let the currency do its job.
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