The Canadian dollar did not weaken significantly after the Bank of Canada abandoned 18 months of warning about higher interest rates last week in response to low inflation and a weak economy, central bank head Stephen Poloz said on Tuesday.
Poloz told a parliamentary committee that in setting interest rates last week the bank heightened its focus on the fact that inflation has been persistently below its 2% target.
Canada's central bank was the first to tighten monetary policy following the 2008-09 global financial crisis, raising its key overnight rate three times in mid-2010 and holding the rate at 1.0% since then.
The central bank held the rate unchanged last week, but surprised markets by signaling its next move could just as well be a rate cut as a hike, effectively ending the mildly hawkish stance it had held since April 2012 and nudging the Canadian dollar to a one-week low.
Poloz said he saw little risk of the bank overshooting its inflation target due to easy monetary policy. Canadian consumer prices rose 1.1% in September and the bank only expects inflation to climb back to 2% by the end of 2015.
Canada's primary securities dealers surveyed by Reuters after the bank's rate decision forecast the bank would not raise rates until the second quarter of 2015, six months later than they predicted previously.
The Bank of Canada has repeatedly expressed disappointment that exports - a central plank of the Canadian economy - have not bounced back as quickly as the bank's models had predicted.
Senior Deputy Governor Tiff Macklem blamed the delayed recovery on an atypical U.S. recovery and the loss of companies in the recession, with a stronger Canadian dollar compounding the problems.
Macklem said the strength of the Canadian dollar versus the U.S. dollar is only part of the reason for the lagging exports.
Poloz emphasized that many exporting companies simply vanished in the 2008-09 recession. Now, he said, that trend is starting to reverse itself.
Related Stories
