MNI BRIEF: Ex-BOC's Poloz Sees 20% CAD Drop In Trade War
MNI (OTTAWA) - Former BOC Governor Stephen Poloz sees the country's dollar dropping as much as 20% in a U.S. trade war, limiting the central bank's ability to cut rates and meet its inflation goal.
“During the collapse of oil prices in 2014-15, the Canadian dollar depreciated by, everybody remember, around 20%,” Poloz said, referencing a period when he was leading the central bank. “You could easily imagine something similar happening in response to these tariffs. But obviously it could be smaller. I’m not going to hazard a guess, but I’m kind of thinking on the big side.”
“If the exchange rate does its job as a shock absorber, it could be very a significant decline, in which case, it’s conceivable that there could be almost no impact at all on U.S. consumers,” he said Wednesday at the Canadian Club in Toronto. “This is where Trump’s claim that Americans won’t pay the tariffs, Canadians will, actually is possible.” (See: MNI INTERVIEW: Trump Canada Threats Amount To A 10% Tariff)
While the potential of stagflation exists for a Canadian economy that was fragile before trade tensions, a currency drop means inflation could reach the top of the Bank's target band, Poloz said. “It could mean that they (BOC officials) would be more cautious of course about finding their interest-rate path because they wouldn’t want to light a fire.”