Bank of Canada wary of commodity market reform

Thu Feb 10, 2011 3:52pm EST
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By Bruce Johnstone

REGINA, Saskatchewan (Reuters) - The Bank of Canada warned on Thursday against hasty reform of commodity markets, carving out its position for a G20 meeting in France where officials will discuss curbs on commodity speculators.

John Murray, a deputy governor at the central bank, said before tightening regulations world leaders should first determine how much of commodity price moves are caused by speculative trading and whether there is a market failure or serious economic harm.

French President Nicolas Sarkozy, who is chairing the G20 this year, has put reform of the commodity derivatives market near the top of the group's agenda. Finance ministers and central bank governors from the 20 large advanced and emerging economies will meet in Paris next week.

"Policymakers determined to take corrective action should therefore proceed with caution. Without a clear diagnosis it is difficult to talk about remedies and policy fixes with any confidence," Murray said.

Even Sarkozy has called for a more thorough review before taking action, Murray noted.

The rally in oil prices has caused concern in consuming countries about the impact on inflation and economic growth.

Spiraling food prices, which helped spark deadly riots that brought down the ruling regime in Tunisia, also weigh on policy makers' minds as they prepare to meet.

Canada has a big stake in this debate as the only member of the advanced G7 economies that is also a major commodity exporter. Natural resources production represents about 11 percent of its gross domestic product and one third of exports. The Alberta oil sands are home to the largest deposits outside Saudi Arabia.   Continued...