WATERLOO, Ont. – An increase in interest rates by the U.S. Federal Reserve will affect Canada, but Bank of Canada deputy governor Timothy Lane says that doesn’t mean the central bank is under any pressure to follow suit.
“We are free to adjust our policy interest rate in the context of Canadian economic conditions — and, in particular, do not need to move in step with the Federal Reserve,” Lane said in prepared remarks of a speech delivered Wednesday in Waterloo, Ont.
The comments come amid rising expectations that the U.S. Federal Reserve will raise its key interest rate next month.
Changes by the U.S. Federal Reserve will have some bearing on Canada, Lane said, and the central bank will have to account for them alongside “many other factors” when determining monetary policy here at home.
A hike by the U.S. Federal Reserve of its key interest rate would spark an increase in interest rates globally and strengthen the U.S. dollar.
“It is important to note that the economic setting for such an interest rate move also needs to be taken into account,” Lane said.
“The Fed’s rate move would likely be made in response to a strengthening U.S. economy, which is itself typically favourable for our exports.”
The next U.S. Federal Reserve meeting is set for Dec. 13 and 14.
In its last meeting, the Fed said the case for a rate hike has “continued to strengthen” as the economy has improved, but it kept the rate unchanged.
The Fed last increased its key interest rate in December 2015 when it raised it by a quarter of a percentage point to a range of 0.25 per cent to 0.5 per cent.
The Bank of Canada’s key interest rate target sits at 0.5 per cent after it was cut twice last year.