Bank of Canada sees challenges from U.S. slowdown

Wed Apr 2, 2008 9:29am EDT
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LONDON, Ontario (Reuters) - The Bank of Canada on Wednesday singled out a sluggish U.S. economy as the biggest economic challenge for the rest of the world, and stressed the need to keep inflation low, stable and predictable.

Senior Deputy Governor Paul Jenkins, speaking to the Chamber of Commerce in London, Ontario, gave no clue if central bank thinking on interest rates had changed. But he repeated comments the bank made last month when it cut its benchmark interest rate by half a percentage point to 3.5 percent.

"As we said in our last policy press release a month ago, the correction in the U.S. housing sector, knock-on effects of this correction to other parts of the U.S. economy, and the tightening of credit conditions in global financial markets have led us to conclude that the risks surrounding the Canadian economy have shifted to the downside," he said.

"We also said that further monetary stimulus is likely to be required in the near term to keep aggregate supply and demand in balance and to achieve the 2 percent inflation target over the medium term."

Jenkins also repeated that the central bank has no target for the Canadian dollar. He said the stronger currency had led to flat or falling exports, especially manufacturing exports, but it had also offset the impact of higher commodity prices.

A U.S. slowdown was hurting Canada too, he said.

"This slowdown involves several interconnected elements, and, given our close trade links to the United States, has very direct consequences for Canada," Jenkins said.

(Reporting by John McCrank; writing by Renato Andrade; editing by Janet Guttsman)

<p>Senior Deputy Governor of the Bank of Canada Paul Jenkins speaks before the Canadian Association of New York November 6, 2007. REUTERS/Brendan McDermid</p>