(Adds market reaction)
By Fergal Smith
TORONTO, Nov 21 (Reuters) - Bank of Canada Governor Stephen Poloz said on Thursday he thought Canada’s monetary conditions were about right given the current economic situation that is being challenged by global trade tensions.
The central bank was watching to see whether trade uncertainty spilled over and affected confidence within the rest of the economy, Poloz told a business audience during a fireside chat in Toronto.
“So where we sit today we’re watching this, we think we got monetary conditions about right given the situation,” he said.
The Canadian dollar, which has lost ground since October due to a more dovish stance from the bank, rallied as much as 0.4% to 1.3269 per U.S. dollar, or 75.36 U.S. cents, after the comment as investors reduced bets on an interest rate cut over the coming months.
Chances of a rate cut at the Bank of Canada’s next policy meeting on Dec. 4 fell to about 10% from more than 20% on Wednesday, data from the overnight index swaps market showed.
Last month, Canada’s central bank held its overnight interest rate at 1.75% as expected, but left the door open to a possible cut over the coming months. The bank has sat on the sidelines in terms of monetary policy since October 2018 even as many of its counterparts, including the U.S. Federal Reserve, have lowered rates.
The Fed cut its benchmark rate as expected in October, to a range of 1.50% to 1.75%, to help the U.S. economy weather a global trade war without slipping into a recession, but signaled it was on hold. The move marked the first time the U.S. policy rate has been below the Bank of Canada’s equivalent since December 2016.
“We notice that the Fed has cut rates three times, now they are down to where we are,” Poloz said on Thursday.
“So the two economies are faring pretty similarly at this stage. We are watching that very closely.”
The Bank of Canada has cautioned that the Canadian economy, which relies heavily on exports, is not immune to the impact of global trade disputes, including between the U.S. and China.
Earlier this week, Senior Deputy Governor Carolyn Wilkins said the country’s financial system was in a relatively good place to weather any potential storms generated by a worsening global economy, adding the bank was not forecasting a recession either at home or abroad. (Reporting by Fergal Smith in Toronto, writing by Kelsey Johnson in Ottawa; Editing by Bernadette Baum and Marguerita Choy)