OTTAWA 鈥� sa国际传媒 faces its own set of economic challenges and its central bank is setting interest rates accordingly, Carolyn Rogers said as the Bank of sa国际传媒 and U.S. Federal Reserve appear to be charting different paths.
In a speech in Winnipeg Thursday, the Bank of sa国际传媒's senior deputy governor touted the advantage of having an independent monetary policy.
While the world is interconnected, Rogers said the Bank of sa国际传媒 needs to do what鈥檚 best for sa国际传媒, while other central banks do what鈥檚 best for their countries.
鈥淲hile we鈥檙e always thinking globally, we have to act locally,鈥� she said. 鈥淲e must tailor our policy to Canadian circumstances.鈥�
Her comments come one day after the central bank held its key interest rate steady for the first time in a year, diverging from the U.S. Federal Reserve, which has signalled more rate hikes are to come.
At its Jan. 25 interest rate decision, the Bank of sa国际传媒 said it was planning to move to the sidelines, appearing hopeful its rate hikes to date may be sufficient to quash inflation.
In her speech, the senior deputy governor parsed out global and domestic circumstances that caused runaway inflation, noting that the Bank of sa国际传媒鈥檚 rate hikes are geared toward addressing homegrown inflation.
Rogers said what started off as a run-up in prices caused by high commodity prices, a surge in global demand for goods and disrupted supply chains then became a domestic phenomenon as the Canadian economy got overheated.
And while sa国际传媒鈥檚 experience with inflation has a lot in common with other countries, Rogers said 鈥渨e can also see some differences.鈥�
Rogers pointed out some specific differences, noting sa国际传媒鈥檚 inflation rate is the second-lowest in the G7, economic growth has been the strongest since interest rates began to rise, and employment growth has been strong.
At the same time productivity growth is one of the lowest, and Canadian households are some of the most indebted in the G7.
鈥淎s global inflationary pressures continue to recede, each country will need to chart its own course to get back to price stability,鈥� Rogers said.
Diverging monetary policy between sa国际传媒 and the U.S. could weaken the Canadian dollar, making imports more expensive.聽
In a question-and-answer period after her speech, Rogers said there's "no question" that what happens in the U.S. economy has implications for sa国际传媒.
"It is true if our dollar depreciates ... that means imports coming into the country are more expensive. That can put upward pressure on inflation," Rogers said.
"If that happens, that will have to get built into our forecast."
Later in a news conference, Rogers said there are some differences between the U.S. and Canadian economies that have implications for each country's monetary policy.
"We are seeing inflationary pressures come down a little more than they're seeing in the U.S.," she said.
Though the central bank expects to hold its interest rate steady, it has made it clear that the pause is conditional on the economic performance and inflation cooling as expected.
On Thursday, Rogers made that point once again.
鈥淚f economic developments unfold as we projected and inflation comes down as quickly as we forecast ... then we shouldn鈥檛 need to raise rates further,鈥� Rogers said.
鈥淏ut if evidence accumulates suggesting inflation may not decline in line with our forecast, we鈥檙e prepared to do more.鈥�
In her speech, Rogers also discussed Wednesday鈥檚 rate decision, noting that the governing council found a 鈥渕ixed picture鈥� when evaluating recent economic data.
鈥淥verall, though, things are unfolding broadly in line with our outlook,鈥� she said.
Economic growth has slowed noticeably, with the Canadian economy posting no growth in the fourth quarter.
However, Rogers said the labour market is still 鈥渧ery tight.鈥�
The Bank of sa国际传媒 has stressed lately that wage growth, which has been hovering between four to five per cent, isn鈥檛 compatible with the central bank鈥檚 two per cent inflation target.
The central bank says the economy would have to see productivity growth to justify that rate of wage growth.
鈥淟abour productivity fell for a third straight quarter, so productivity isn鈥檛 trending in the right direction so far,鈥� Rogers said.
This report by The Canadian Press was first published March 9, 2023.
Nojoud Al Mallees, The Canadian Press
