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ECONOMY: Bank of Canada ready to act to fight downturn
        (AlbertaIndex, April 3, Thursday) --- The slowdown in the US economy will impact Canada given the close trade links between the two countries, but the Bank of Canada is ready to help boost business conditions to counter any downturn, said a senior official.
        The manufacturing sector is suffering from declining exports as a result of the weakness of the US economy, the strength of the Canadian dollar, and growing competition from Asia, said Paul Jenkins, the bank’s senior deputy governor.

But Canada has also been helped by strong commodity prices, which have substantially boosted incomes as the prices of our exports are rising faster than the prices of our imports.

In a speech to the London Chamber of Commerce in Ontario yesterday, Jenkins said the difference has led to a rise in real incomes and support for domestic demand as reflected in rising consumption, construction spending, investment in machinery and equipment, and, more broadly, in employment gains.

On a net basis, Jenkins noted that Canada has a situation of strong domestic demand offsetting a weak traded-goods sector.

The Bank has based its monetary policy on judgments about the relative strengths of these competing forces, with the aim of keeping inflation at its 2 per cent target.

Currently, Canada’s CPI inflation rate is 1.8 per cent. Excluding the one-time effect of the January GST cut, total CPI inflation is 2.4 per cent, and core inflation (which excludes the more volatile components) is 1.5 per cent.

Keeping inflation is a top priority as the world now faces inflationary pressures after five to six years of nearly unprecedented growth with little inflation.

However, the sharp downturn in the US economy, and the tightening of credit conditions in global financial markets have led the Bank to conclude that the Canadian economy faces the risks of being dragged down by these forces. In response, the Bank decided to lower its policy interest rate by 50 basis points to 3.5 per cent.

Assuring his audience that the Bank would act to counter any downturn, Jenkins concluded: “We said that further monetary stimulus is likely to be required in the near term to keep aggregate supply and demand in balance and to achieve the 2 per cent inflation target over the medium term.”

He added: “Good macroeconomic management is certainly part of what is needed to help provinces, cities, and communities adjust to global change. This includes sound fiscal policies, policies that help to reduce public sector debt levels relative to the size of the economy.

“The Bank of Canada also has an important role to play. The Bank’s monetary policy aims at keeping inflation low, stable, and predictable. This, in turn, helps households, businesses, and governments to read price signals more clearly, respond to relative price movements more promptly, and allocate production resources more efficiently.”

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