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Outlook Remains Bullish


Corrective Cycle


Bounce Considered Corrective


Issuance Slow-Down

Credit: Bank of Canada
Governor Tiff Macklem

Bank of Canada Governor Tiff Macklem told MNI further strength in the country's dollar unmatched by domestic momentum could become a headwind to growth, and called forward guidance on holding interest rates into 2023 "qualitative or state contingent."

"Over the last couple of quarters, there has been a broad-based depreciation of the U.S. dollar," which was noted in the last economic forecast report, Macklem said. "In this case, the appreciation doesn't reflect strength in Canada, it reflects the weakness of the U.S. dollar."

"As it's come up and as it starts to go beyond where it was pre-pandemic, there is certainly a risk that it becomes a headwind to our outlook for exports," Macklem said.

"If we were to continue to see an appreciation of the Canadian dollar that doesn't reflect good things that are happening to Canada, that is a risk against our outlook that we're going to get that rebound in exports, and other things equal that means we're going to have a weaker economy," he said.


The recent gain in oil prices, a top export for Canada, has also allowed the currency to play more of a healthy "shock absorber" role in response to swings in global demand, Macklem said.

Canada's economic recovery faces many obstacles and will be prolonged, the governor said. The BOC has said an economy strong enough to stabilize inflation at its 2% target that justifies raising the record low 0.25% policy interest rate likely won't be in place until 2023. Two of Canada's big commercial banks predict an increase will come towards the end of next year with the economy lifted faster by widespread vaccinations and U.S. demand.

"Our forward guidance has been qualitative or state contingent," Macklem said.

"Our current forecast has that happening, getting to full employment, capacity in 2023," he said.

"You know, if it happens more quickly, that would be a great thing, and we will adjust monetary policy appropriately," Macklem said, when asked about forward guidance. "If it happens more slowly, we will be there to make sure we support and do everything we can to get inflation back to target and get the economy back to its potential as soon as we can."

The BOC's monetary policy is also supporting the recovery with asset purchases of at least CAD4 billion a week and other programs to support debt market functioning. Asked whether he is confident the BOC will be able to fully exit emergency policies, given the struggles to do so by other central banks, Macklem replied: "Our policy decisions are going to be driven by our inflation target."


Canada's dollar traded at around CAD1.256 to the dollar on Wednesday, the strongest levels since 2018. While the BOC has mentioned currency strength in its last few decisions, firms told Canada's export bank late last year the dollar is a non-factor compared with the pandemic and rising U.S. and Chinese protectionism.

On the potential for a central bank digital currency, Macklem said central banks have good reason to become involved as private companies develop their own payment systems.

"Private sector digital currencies, these private sector entities, they're in this for profit. They're not in this for the public good," the governor said. "There are risks that they will be using these digital currencies as a way to make money, for example by exploiting the patterns of all our purchases, to create great information that they can sell to others."

"It can be really important to have a secure, universal, a public good, digital currency provided by the central bank," Macklem said. "So I do think it is something that is coming. And I do think it's something that we need to be ready for."