The Bank of Canada is looking to clip the wings of the soaring Canadian dollar in order to hold onto newfound strength in export growth, according to the deputy chief economist of CIBC World Markets.
Canada's central bank stood pat Wednesday, electing to keep its benchmark lending rate at 0.5 per cent but warned that the higher Canadian dollar is hampering the pace of non-resource exports.
“This is a bank with an agenda,” said Benjamin Tal, in an interview on BNN. “The agenda is a weaker Canadian dollar. Whatever they do is designed to lower the value of the dollar.”
The loonie is near its strongest level in nine month, having gained about 10 cents against the U.S. dollar since the lows of January.
The central bank also lowered its GDP forecast for next year to 2.3 per cent, down from 2.4 per cent in its last report.
The bank said the combined effects of global and domestic developments “would have been a modest downgrade of the bank’s outlook” if not for the fiscal measures announced by Ottawa in March.
Last month’s federal budget, which includes roughly $25 billion in new stimulus spending, is expected to boost gross domestic product by 1.7 per cent in 2016. That’s up from 1.4 per cent forecast in January.
With the higher dollar weighing on business investment and foreign demand, Tal believes the central bank will do what it takes to end the loonie’s winning streak.
“If you take the fiscal stimulus out of the story, they’re telling us that we are basically close to a recession in the economy. And that’s something that leaves the door open for another rate cut,” he said.
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