Bank of Canada Govcernor Mark Carney speaks to the media during a press conference after speaking to the Canadian Club of Toronto and Empire Club of Canada in Toronto on Wednesday, Dec. 16, 2009.Nathan Denette/The Canadian Press
The Bank of Canada's earlier date for a likely rise in its overnight interest rate expresses an increased confidence in the Canadian economy, and in particular a degree of comfort with a Canadian dollar at parity with its American cousin.
The bank withdrew yesterday its 12-month-old "conditional commitment" to keep its policy rate at a minimal 0.25 per cent until Canada Day, or later; practically speaking, that means it could go up by a quarter of a percentage point as soon as June 1.
As recently as October, Mark Carney, the Governor of the Bank of Canada, was warning that it might have to intervene in the currency market to restrain the rise of the Canadian dollar, and for a time these words of his were apparently enough to do so.
Now, his views seem to have changed. Higher interest-rate levels attract money from other countries, from investors seeking higher returns, and that in turn pushes the national currency higher. Yesterday, the announcement of a probable interest-rate increase was followed by a rise of the Canadian dollar to more than parity.
The bank's press release yesterday mentioned the "persistent strength" of the dollar as one of the "significant drags" on the economy, but does not adduce this as a reason to intervene, or to extend the low 0.25-per-cent rate.
The flow of money into Canada, drawn here partly by rising rates, has its advantages, above all in the strengthening of pension funds and other retirement savings, alleviating the worries about families' portfolios brought on by the financial crisis of 2008-2009.
For 14 consecutive months, foreigners have been net buyers of Canadian bonds, adding up to $101-billion.
Exporters of Canadian goods remain unenthusiastic about the change in the exchange rate, but the view that Canadian firms relied too long on its cheap currency, rather than on new capital investment has taken hold.
Canadian feelings on dollar parity seem to range from resignation to national pride and pleasure at greater cross-border purchasing power. The Bank of Canada has far greater analytic capacity than most Canadians, but Mr. Carney appears to have shifted in tandem with the public.