Bank of Canada vows relentless focus on inflation

Fri Jun 20, 2008 3:20am EDT
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By Jeffrey Jones

CALGARY (Reuters) - Bank of Canada Governor Mark Carney on Thursday sought to justify his surprise decision last week to hold interest rates steady, rather than lowering them, saying an unprecedented rise in commodity prices required a "relentless focus on inflation."

Carney, speaking in Canada's oil capital, said the global spike in energy and food prices was unlike any previous commodity boom because the increases have been so steep and have encompassed such a broad range of goods.

Carney described the phenomenon as a "commodity super cycle," suggesting a period of rising prices that outlasts the usual business cycle of seven or eight years.

"In the face of the largest commodity-price shock in our lifetimes, we cannot be complacent," Carney said.

At the same time, he warned Canada, as a net exporter of crude oil, to guard against squandering its growing wealth like many economists say the country had done in the 1970s.

Carney reminded his audience of a ubiquitous bumper sticker in Alberta during that time, without repeating the refrain. It read: "Lord, give us another oil boom and we promise not to piss it away again."

"The question now is how to make good on that promise," he said in his speech to a conference sponsored by the Haskayne School of Business in Calgary, Alberta.

Against that backdrop, he said, the central bank was forced to abandon its view, clearly stated in April, that more rate cuts were needed to shield the economy from the U.S. slowdown and credit market turmoil.   Continued...