Plucky loonie gives BoC reason to pause

Bank of Canada governor Mark Carney has raised the alarm on the surging Canadian dollar, while reiterating his conditional commitment to keep interest rates at historical lows.

OTTAWA — Bank of Canada governor Mark Carney has raised the alarm on the surging Canadian dollar, while reiterating his conditional commitment to keep interest rates at historical lows.

The central bank says the dollar’s recent surge above 90 cents US has been so rapid and robust that it threatens to strangle the nascent economic recovery.

“In recent weeks, financial conditions and commodity prices have improved significantly, and consumer and business confidence have recovered modestly,” the bank said.

“(But) if the unprecedentedly rapid rise in the Canadian dollar proves persistent, it could fully offset these positive factors.”

The central bank ended its statement by pointing out that it has plenty of ammunition left at its disposal to influence the economy, specifically making reference to so-called quantitative easing.

Quantitative easing involves the purchase of government and possibly corporate bonds, or debt, to free up stimulative money in financial markets that will lead to increased lending and borrowing by businesses and consumers.

The measure has seldom been used because it often involves increasing the money supply, increasing inflation risks.

Bank of Nova Scotia economist Derek Holt called the bank’s caution on the dollar “bold” and unusually unambiguous.

“That last sentence signals it is prepared to use any and all further powers it has at its disposal if it needs to,” Holt said, although he believes it is not necessary at this point.

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