Bank of Canada welcomes end of U.S. ultra-easy policy

Wed Oct 29, 2014 6:35pm EDT
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By Randall Palmer and David Ljunggren

OTTAWA (Reuters) - The head of Canada's central bank on Wednesday welcomed the U.S. Federal Reserve's decision to abandon its ultra-easy money policy, saying it showed the U.S. economy is gaining traction, but warned weaker oil prices will crimp Canadian growth.

The Federal Reserve on Wednesday ended its monthly bond purchase program and dropped a characterization of U.S. labor market slack as "significant" in a show of confidence in the economy's prospects.

"This is unambiguously a good thing," Bank of Canada Governor Stephen Poloz told a parliamentary committee in Ottawa.

"Quantitative easing was always in theory in the central banker's tool kit, but was never brought out until we were truly in an emergency situation. And so, the fact (is) that the U.S. economy is gaining traction."

The United States is Canada's largest trading partner.

Poloz added that while the brightening outlook for the U.S. economy could weaken the Canadian dollar, it could also help Canadian business by spurring more exports.

"The most important ingredient for export sales is the U.S. economy recovering - is there a demand for our goods and services from the U.S. - and we see that traction as coming. If the Canadian dollar is a little lower than it was last year that adds to the profit margin," he said.

Poloz warned, however, that a slump in global oil prices was likely to slow growth next year and posed a threat to jobs creation. He said the bank was working on the assumption of $85 per barrel crude oil in 2015.   Continued...

Bank of Canada Governor Stephen Poloz addresses reporters after a meeting of G-20 finance ministers and central bank governors during the IMF-World Bank annual meetings in Washington October 10, 2014.  REUTERS/Jonathan Ernst