Bank of Canada repeats warning on stronger C$

Thu Oct 8, 2009 5:46pm EDT
 
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By Allan Dowd

VANCOUVER (Reuters) - The Bank of Canada repeated its concern about the strength of the Canadian dollar on Thursday, warning that it could delay the return of inflation to the bank's 2 percent target.

The latest comments came after the currency hit a one-year high of C$1.0506 to the U.S. dollar, or 95.18 U.S. cents, boosted by higher commodity prices and optimism about the global economic recovery.

The Canadian dollar is substantially higher than the level the central bank had assumed in its July Monetary Policy Report, and officials have repeatedly expressed their concern about the currency's strength.

"All else being equal, a persistently strong Canadian dollar would also reduce real growth and delay the return of inflation to target," Senior Deputy Governor Paul Jenkins said in a speech to the Vancouver Board of Trade.

He repeated the comment when asked about the exchange rate after his prepared remarks.

Jenkins reiterated the central bank's stance that, though its rock-bottom target interest rate cannot be cut further, it could take other measures such as quantitative easing, effectively printing money, to curb the currency.

"Even though we are at the effective lower bound for our policy rate, the bank retains considerable flexibility in the conduct of monetary policy," he said.

Many market players doubt the bank will intervene to weaken the currency. Still, the Canadian dollar weakened slightly after his remarks were published, slipping as low as C$1.0540 to the U.S. dollar, or 94.88 U.S. cents, from C$1.0515, or 95.10 U.S. cents, just before.   Continued...