End to U.S. stimulus will ultimately benefit Canada

OTTAWA — The Bank of Canada’s John Murray says the eventual removal of monetary stimulus in the U.S. will have a negative impact on the loonie and lead to higher interest rates, but will be ultimately good for Canada.

OTTAWA — The Bank of Canada’s John Murray says the eventual removal of monetary stimulus in the U.S. will have a negative impact on the loonie and lead to higher interest rates, but will be ultimately good for Canada.

In a speech to a business audience in Kingston, Ont., the deputy governor issued the Canadian central bank’s first substantive pronouncement on the so-called “tapering” policy being contemplated by the U.S. Federal Reserve, which would result in a slowdown of the $85-billion-a-month stimulus it is currently injecting into the economy.

The logical consequence will be to give upward momentum to interest rates and apply downward pressure on the loonie, Murray said, but like the extraordinary stimulus program, the tapering will be a net benefit to Canada.

A stronger U.S. economy, along with the weaker loonie, will more than compensate for the drag of interest rates by providing support for commodity prices and increased demand for Canadian exports, he explained.

“The improving underlying strength of the U.S. economy should more than compensate for the drag from higher interest rates.

“Stronger external demand, coupled with downward pressure on our currency and support for commodity prices from a global economic recovery, will provide the lift,” he told the Canadian Association for Business Economics.

Notes of the address were released in Ottawa.

Murray cautioned, however, that the exit from stimulus might be bumpy.

Policy-makers were alarmed he said with the market reaction earlier this year when the Fed first began hinting it might begin tapering in the fall if conditions continued to improve.

Bond yields spiked and financial assets that benefit from the extraordinary asset purchases fell sharply, even though the announcement was anticipated and there was no suggestion of actually moving away from stimulus.

The alarm came because “it suddenly seemed that unwinding unconventional monetary policies might not be as straightforward and painless as many had thought or at least had hoped,” he said.

Murray said when it comes time actually move, he remains hopeful the market reaction will be calmer, in part because the removal of stimulus will come when economies have achieved “escape velocity” and in part because authorities have learned the value of telegraphing their intentions before acting.

When the exit strategy is commenced, he said, it will be “one of the best-telegraphed events in monetary history.”

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

A nurse gets a swab ready at a temporary COVID-19 test clinic in Montreal, on Friday, May 15, 2020. Health Canada has reversed course on home test kits for COVID-19, saying it will now review applications for such devices. THE CANADIAN PRESS/Paul Chiasson
Alberta declines Ontario’s request to send health-care workers

Alberta is “not in a position” to send health-care workers out of… Continue reading

Meghan Huizing has been selected by Red Deer Catholic Regional Schools as a finalist for the Alberta School Boards Association (ASBA) 2021 Edwin Parr Award. (Photo courtesy of Red Deer Regional Catholic Schools)
Red Deer Catholic names finalist for Edwin Parr Award

Meghan Huizing from St. Gregory the Great Catholic School in Blackfalds has… Continue reading

GrammaLink-Africa members are participating in the Stride to Turn the Tide campaign until June 30. (Contributed photo)
Red Deer group walking to raise money for African grandmothers

A group of central Albertans will be walking every day until the… Continue reading

Westerner Days could be in line to have patrons in attendance this summer as the province teased reducing COVID-19 capacity limits on outdoor events. File photo by ADVOCATE staff
Province provides hope for attendance at summer events

The province has given a positive update to organizations that hold summer… Continue reading

Red Deer Public Schools will not pilot the new draft curriculum at its elementary schools. (File photo contributed by Red Deer Public Schools)
UPDATED: Red Deer Public Schools says no to piloting new curriculum

Alberta Teachers’ Association support school boards

Downtown Iqaluit, Nunavut, is shown after 2 p.m. sunset on Tuesday, Nov. 24, 2020. Nunavut has declared an outbreak of COVID-19 in Iqaluit after 12 new cases were reported overnight. THE CANADIAN PRESS/Emma Tranter
COVID-19 outbreak declared in Iqaluit as infection numbers rise after first case

COVID-19 outbreak declared in Iqaluit as infection numbers rise after first case

Three vials of the Moderna COVID-19 Vaccine are pictured in a new coronavirus, COVID-19, vaccination center at the Velodrome-Stadium in Berlin, Germany, Wednesday, Feb. 17, 2021. THE CANADIAN PRESS/AP/Michael Sohn, pool
Pfizer supply bolstered as Moderna cuts delivery, Ontario turns down Trudeau’s help

Pfizer supply bolstered as Moderna cuts delivery, Ontario turns down Trudeau’s help

Lights on an internet switch are lit up as with users in an office in Ottawa, on February 10, 2011. THE CANADIAN PRESS/Adrian Wyld
Analysts say CRTC ruling will help regional carriers with new limits on Big Three

Analysts say CRTC ruling will help regional carriers with new limits on Big Three

In this May 26, 2018, file photo, people listen to Michael Franti perform at the BottleRock Napa Valley music festival in Napa, Calif. Canadian music festival organizers hoped this summer would mark a return to concerts, but as COVID-19 cases rage on many have already dropped off the calendar. THE CANADIAN PRESS/AP/Eric Risberg
Facing the music: Summer concert festival organizers see no path ahead in pandemic

Facing the music: Summer concert festival organizers see no path ahead in pandemic

FILE - Ali Stroker accepts the award for best performance by an actress in a featured role in a musical for her performance in "Rodgers & Hammerstein's Oklahoma!" at the 73rd annual Tony Awards in New York on June 9, 2019. Stroker teamed up with middle grade author Stacy Davidowitz for a new children's book "The Chance to Fly," published this week. (Photo by Charles Sykes/Invision/AP, File)
Singer with disability shines in Ali Stroker’s new kids book

Singer with disability shines in Ali Stroker’s new kids book

Retired Ohio sheriff and tiny K-9 partner die the same day

Retired Ohio sheriff and tiny K-9 partner die the same day

Musicians play Sikh hymns during Vaisakhi celebrations at Guru Nanak Darbar of Long Island, Tuesday, April 13, 2021 in Hicksville, N.Y. Sikhs across the United States are holding toned-down Vaisakhi celebrations this week, joining people of other faiths in observing major holidays cautiously this spring as COVID-19 keeps an uneven hold on the country. (AP Photo/Jason DeCrow)
Sikhs mark toned-down holiday amid continuing virus concerns

Sikhs mark toned-down holiday amid continuing virus concerns

Have an opinion you'd like to share? Submit letters to the editor through our website, via email or the postal service. (Heather Colpitts/Black Press Media)
Letter: MLAs who are against tougher restrictions have no plan for consequences

The group of UCP MLAs pushing to end lockdowns are exacerbating what… Continue reading

Most Read