“在不引发外汇市场问题的情况下，我们在利率路径上偏离美国的程度是有限的，”麦克勒姆对参议员们说。“但我们还没有接近这些极限。我们过去有过更大的偏差。”Bank of Montreal Governor Tiff Macklem said on Wednesday that the Canadian dollar's weakness is not a factor affecting interest rate decisions. He made the remarks as the Canadian dollar is currently hovering near a 20-year low.
Macklem said, "We have indicated that we are prepared to lower interest rates by 50 basis points, and if we believe that further rate cuts are appropriate, we will cut rates again," referring to the decision last week to lower the policy rate from 4.25% to 3.75%.
Macklem testified before the Canadian Senate, stating that due to the Bank of Canada's four consecutive rate cuts totaling 125 basis points, the Canadian dollar has weakened against the US dollar. In contrast, the Federal Reserve has only cut rates by 50 basis points. Macklem said that a weaker US dollar would boost the economy as exports become cheaper. Global trade is mostly conducted in US dollars.
"Without causing issues in the forex markets, the extent to which we deviate from the US in the rate path is limited," Macklem told senators. "But we haven't come close to those extremes. We have had greater deviations in the past."
Douglas Porter, Chief Economist at BMO Capital Markets, said that the Canadian dollar has weakened in the past month, approaching a 20-year low. One of the reasons for the Canadian dollar's weakness is the overall strength of the US dollar, but another reason is the Bank of Canada's aggressive rate-cutting cycle.
Porter added that the US-Canada three-month government bond yield spread has widened to its largest level since 1997, and he expects the Canadian dollar to remain under pressure in the coming weeks.
The Bank of Canada's overnight rate target has been reduced from 5% in early June to the current 3.75%. Most economists expect the policy rate to fall below 3%, while a few economists believe it could drop to 2%.
Macklem stated that rate cuts are necessary because the Canadian economy is relatively weaker compared to the US. He said, "The economy is growing, but very weak," and added that the policy rate is still in what is considered the restrictive zone, a level that puts pressure on economic activity.
