Bank of Canada governor sees divergence with Fed policy

Tue Dec 15, 2015 2:48pm EST
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By Randall Palmer and Leah Schnurr

OTTAWA (Reuters) - Bank of Canada Governor Stephen Poloz signaled clearly to markets on Tuesday not to expect him to match potential rate hikes by the U.S. Federal Reserve.

Poloz made his remarks a week after saying the bank could cut rates by a whole percentage point if necessary, into negative territory, though he saw no need now.

"Usually you think of the Canadian economy following the U.S. economy fairly closely. This will be one of those places where it really doesn't. It will follow; parts of it are following," Poloz said.

"But as a macro statement, there will a divergence there. We're already seeing it, and so you should expect a divergence in policy too," he said.

His comments on monetary policy, critical as the Fed prepares possibly to raise rates on Wednesday, came at a news conference about a Bank of Canada report on Canada's financial system.

A key difference between the two economies, Poloz said, was that U.S. terms of trade were rising while Canada's were falling. Terms of trade refer to a country's export prices relative to its import prices, and in Canada's case the key is lower oil and commodity export prices.

"This is exactly the situation in which we are glad that we have a flexible exchange rate regime, because that it is an important stress reliever," he said.

The Canadian dollar is near an 11-year low, and while Poloz says the bank does not target the exchange rate, he has cited the benefits of a weak currency.   Continued...

Bank of Canada Governor Stephen Poloz takes part in a news conference in Ottawa December 15, 2015.     REUTERS/Blair Gable