Bank of Canada warns on capital flows, prices

Sat Mar 26, 2011 1:48pm EDT
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By Louise Egan and Jason Lange

CALGARY, Alberta (Reuters) - Canada's top central banker said on Saturday the commodity price boom could last for decades and urged his emerging market peers facing inflationary pressures not to delay raising interest rates for too long.

The rise in prices for commodities is partly due to supply effects, though underlying demand remains strong, Bank of Canada Governor Mark Carney said during a panel discussion at the Inter-American Development Bank's annual meeting in Calgary.

"It's a mistake to chalk this all up to cyclical, and that's where one can make pretty big mistakes and delay too much, both on the monetary side, or on the pretty fundamental structural reforms," Carney said.

"... We're in an environment that is probably going to be with us for several decades," he said.

One challenge for Canada, a major producer of oil, gas, grains and metals, is to rebalance trade and investment away from its top buyer, the United States, he added.

In a speech earlier on Saturday, Carney warned that misguided policies for dealing with high inflation and a flood of capital into emerging markets could lead to financial instability and weak economic growth.

"The stakes are very high," he said.

Carney said some countries were postponing interest rate hikes, needed to arrest inflation, for fear of further boosting currencies that have already been pushed higher due to heavy capital inflows.   Continued...