May 25, 2011 / 9:50 PM / in 6 years

Flaherty says Bank of Canada must strike balance

OTTAWA (Reuters) - Bank of Canada Governor Mark Carney is likely aware of “the need to keep the economy growing” as he considers whether to raise interest rates next week, Finance Minister Jim Flaherty said on Wednesday.

<p>Canada's Finance Minister Jim Flaherty speaks to journalists on Parliament Hill in Ottawa May 25, 2011. REUTERS/Chris Wattie</p>

In an interview with CBC television, Flaherty was asked whether Canada’s benchmark rate of 1.0 percent was too low.

In reply, Flaherty said Canadian rates are still higher than those of the U.S. Federal Reserve, which he called “one of the relevant factors” in monetary policy.

“He has to balance a lot of considerations when he deals with interest rates,” Flaherty said of Carney. “It is a difficult balance to strike and certainly the governor is aware of the need to keep the economy growing.”

Carney has recently said there are limits to how far Canadian and U.S. rates can diverge, which some economists interpret to mean he is reticent to hike rates too far past U.S. levels for fear of pushing the Canadian dollar higher.

The central bank was the first of the G7 advanced economies to lift rates from emergency lows after the global financial crisis. It raised rates three times between June and September of last year.

The bank is widely expected to keep its overnight target rate steady on May 31 and most market players expect it to resume tightening in the third quarter of this year.

However, there is little consensus on the exact timing of the next move as the bank weighs signs of growth and price pressures against the dampening effects of a strong currency and weak U.S. demand for exports.

Canada’s central bank is independent and it is considered taboo for politicians to try to influence monetary policy deliberations.

Reporting by Louise Egan

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