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Bank of Canada Can Ease Tariff Pain But Can’t Fix Damage, Macklem Says

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Bank of Canada’s governor Tif McLim says the central bank cannot fix the economic damage of the trade war with the United States – but it will do its best to make it less painful.

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(Bloomberg) – Bank of Canada’s governor Tif Maclim says the central bank cannot fix the economic damage of the trade with the United States – but it will do his best to make it less painful.

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US President Donald Trump threatened to impose a tariff of up to 25 % on Canadian goods early on February 1. This will be a great success for the Canadian economy, and the high import costs will increase prices.

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“A significant increase in definitions is a significant disruption of the Canadian economy. McLim said in an interview with Bloomberg News on Wednesday:” Monetary policy cannot fix this. ”

He said that the commercial battle, if it comes to passing, means that the economy will work less efficiently. Canadians will produce less and have less income, and growth will be on a lower road.

However, Macklem said that the bank “can try to help in this modification”, by ensuring that the economic shock is not more surprising and painful than it should, and ensuring that the higher prices only cause “a temporary increase in inflation that comes down at a reasonable speed.”

The bank, which works to support the currency, did not rule out a major “defect” in the market.

Comments reinforce the central bank challenge as it is preparing for an unknown and possibly economic event. Earlier on Wednesday, the central bank reduced the interest rate to 3 %, and Macklem explains that there is no clear playing book if Trump directed his threat.

Political makers said that they will believe in the declining pressure on inflation from economic weakness in exchange for the upward pressure of high input prices and disrupting the supply chain – which means that the bank can either raise or reduce rates depending on power stronger.

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In the interview, McLeim said he expected to have more clarity about what is happening with a tariff that has made more details appear.

“I don’t think the first thing said is necessarily as we end up. This will be an advanced situation, and Trump does a good job to keep everyone away from Kilter by saying a lot of things.”

A crisis of a crisis

McLim described the Covid-19 shock of 2020, recovery and height once in the generation in inflation. Without the threat of a tariff, Canada’s expectations will look “very good”.

“Inflation decreases, inflation is low, and we think it will remain around our goal. We believe that we have prepared low inflation.”

On Wednesday, the officials dropped any guidelines on interest rates from their contacts, which is evidence of the increasing uncertainty. “There are a lot of things that we do not know to start providing instructions forward around the place we go,” Maclim told Bloomberg.

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McLim has repeated that he believes that commercial threats have the greatest impact on the low value of LONIE in recent months, although the gap between the Canadian policy price and the interest rate policies in the Federal Reserve has some effect.

“When there is more uncertainty, investors want to compensate for it,” he said.

While McLim said he did not yet see any evidence of major disturbances in exchange rates, he did not eliminate the possibility of interfering in the currency support in this event – which the central bank did during the Asian crisis in 1997.

“When you get more material movement at the exchange rate, of course, we need to take into account more in our outlook.”

“We have not seen signs of any dysfunction or golf, or jumped at the exchange rate. It returns to that period in the nineties where there was some defect and this is the reason for the bank’s intervention. If we want to see that, we will take it seriously.”

Macklem was already concerned about the weak investment level in the country before the threat of customs tariffs appeared, but it is now more anxious. Understanding is high, and commercial conflict has the ability to increase the productive capabilities of the economy, which limits income growth.

The bank reduced the contribution of investment in economic growth in its predictions in the monetary policy report on Wednesday.

“If you don’t get more income, you cannot consume more on a sustainable basis. McLeim warned that Canada has started to put in high home debt.” Family debt breeding will not be the solution to increase our consumption in a sustainable manner. “

With the help of Randy Thanang Kenit.

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