TORONTO (Reuters) - Finance Minister Jim Flaherty said on Friday that policymakers have only limited tools available to brake the sharp rise in the Canadian dollar against the U.S. dollar.
In unusually blunt comments, Flaherty told BNN television in an interview that the government and the Bank of Canada could work together to put pressure on the currency, which has surged nearly 21 percent since March, but he gave no indication he was willing to make such a move.
“The tools are limited and we’ve made that clear,” Flaherty said. “We ought not to kid anyone about that.”
“I’ve certainly made that clear. The governor of the Bank (of Canada) I think has made that clear. There are some tools that can be used by the bank in conjunction with Finance where we can act together in order to put some downward pressure on the dollar,” he said.
A strong dollar hurts exporters, the backbone of the Canadian economy, because it makes their goods less price competitive and reduces gains on foreign exchange. Policymakers worry that the currency’s appreciation could throw the economic recovery off track.
Flaherty said the strong currency may be a reflection of a comparatively healthy Canadian economy. “The reality is we have a strong fiscal situation in Canada and the fiscal situation in the United States is not strong,” he said.
The Bank of Canada has suggested in recent remarks that at least part of the currency’s rise has been unjustified and that it has considerable flexibility to act if needed.
On Thursday, the bank repeated that persistent strength in the currency is a risk to economic recovery. It suggested it could resort to unconventional policy measures, such as printing money, if necessary to lower its value.
The Canadian dollar was lifted on Friday by higher commodity prices, trading at about C$1.0750 to the U.S. dollar, or 93.02 U.S. cents, up from C$1.0783 to the U.S. dollar, or 92.74 U.S. cents, at Thursday’s close.
Later on Friday, Flaherty said Canada’s recovery from economic recession is not yet fully secured and the government must continue spending on projects to stimulate growth.
“Canada’s economy is still fragile and uncertain. The global economic crisis is affecting every part of the country, affecting every country in the world,” Flaherty said while announcing infrastructure projects in Toronto.
“It’s important that we continue to stimulate the economy in Canada and this announcement is an important part of that,” he said after announcing C$600 million ($556 million) in investments in infrastructure projects in the city.
On Thursday, Flaherty acknowledged that as a result of the global economic meltdown and the government’s stimulus spending, the Conservative government does not know for sure when it will be able to eliminate its budget deficit.
Previously, the government had promised to balance the books by 2013-14 but it has now pushed that back by at least two years, based on private-sector forecasts for economic growth.
The government’s deficit for 2009-10 will be about C$55.9 billion -- about 10 per cent more than its previous forecast.
Reporting by Ka Yan Ng and Louise Egan; editing by Peter Galloway