Beyond the Lower Bound
The Bank of Canada seems to have at least left the door open to taking unorthodox measures to take some of the steam out of soaring loonie.
Today’s interest rate announcement – http://www.bankofcanada.ca/en/fixed-dates/2009/rate_201009.html – to be followed by a full Monetary Policy Report on Thursday – expresses concern that the strong Canadian dollar will hold back recovery… “The current strength in the dollar is expected, over time, to more than fully offset the favourable developments since July.”
Meanwhile inflation remains very low, below the target rate, and will remain very low…. “the Bank judges that, as a consequence of operating at the effective lower bound, the overall risks to its inflation projection are tilted slightly to the downside.”
So maybe the Bank should consider unorthodox measures to offset the impact of the higher dollar, and they do hint at that.. “In its conduct of monetary policy at low interest rates, the Bank retains considerable flexibility, consistent with the framework outlined in the April MPR.”