For any central bank it is difficult to strike the right balance between interest rate hike and currency valuation. Our central bank does not have a clear mandate to keep the Canadian dollar under a reasonable value. Although it falls under a broad spectrum category and it does have influence on rate of inflation but it is not the primary objective of BoC.
Rate Tightening Threat:
It is a periodic chore of the Bank of Canada to warn Canadian about potential of a rate hike – no matter how remote it is. The issue with any such warning is that the news spreads fast and some people love to trade on news.
Side Effect of Rate Threat:
It was reported that as an effect of the following statement made by Tiff Mackle, Senior Deputy Governor of the Bank of Canada, Canadian dollar gained momentum.
To the extent that the economic expansion continues and the excess supply in the economy is gradually absorbed, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate, consistent with achieving the 2 per cent inflation target over the medium term. The timing and degree of any such withdrawal will be weighed carefully against domestic and global economic developments.
Debt and Dollar Balance:
Everyone understands that Canadians are in very deep debt trouble. Warnings were seriously taken and we are all working on it. A defined mandate does not forbid an enforcer to look around for indirect threats. Controlling debt pro-actively should not increase burden on the manufacturing sector. The banks job should be more of a balancing act rather than controlling the market.
BoC should focus more on its job on hand rather than spending time on peoples face on currency or explaining dead money around.
My 2 cents.
