Bank of Canada Says It Will Not Follow Fed’s Lead on Rates

If the U.S. Federal Reserve raises interest rates the Bank of Canada would not necessarily be pressured to follow suit, one of the Canadian central bank’s economists said on Thursday.

Economist Rhys Mendes told the House of Commons finance committee that the Bank of Canada would view a Fed rate hike as a sign the U.S. economy is strengthening, which would be good for Canada.

Asked whether a U.S. rate hike would put pressure on the Bank of Canada to also raise rates, Mendes replied: “Not necessarily. The bank targets inflation in Canada and decisions regarding monetary policy in Canada would be based on the outlook for inflation.”

The Bank of Canada shocked markets by cutting rates in January to provide what it called insurance against the damage done to the economy by dropping oil prices. Canada is a major oil producer.

Mendes told the committee that in the absence of any monetary policy response to falling oil by the bank, overall Canadian output would have been about 1.4 percent lower by the end of 2016.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza