Calls build for Bank of Canada to cut interest rates
Last Updated: Friday, September 21, 2007 | 3:41 PM ET
CBC News
The Canadian Labour Congress has added its voice to those calling for the Bank of Canada to match the interest rate cut made earlier this week in the U.S.
It was Tuesday's half-percentage-point cut in the U.S. key overnight lending rate that weakened the U.S. greenback and helped the Canadian dollar cover the final few steps towards parity with its American counterpart — a landmark it reached Thursday.
The CLC urged the Bank of Canada to follow suit with a similar rate cut at its next meeting Oct. 16 to preserve jobs in the manufacturing sector.
At least 300,000 factory jobs have disappeared in Canada as the loonie climbed from its 62-cent US low in 2002, according to federal figures.
A high loonie has devastated many manufacturing companies that export to the U.S., as their products became much more expensive for American buyers. Canadian lumber companies have also been hurt by the rising dollar.
CLC president Ken Georgetti said the role of Canada's central bank isn't confined to fighting inflation.
"The Bank of Canada recently intervened in financial markets to mitigate the credit crunch," Georgetti wrote in a letter sent Thursday to the Bank's governor, David Dodge.
"In doing so, it demonstrated the capacity to successfully pursue objectives other than inflation control. The Bank of Canada should be as willing to act in response to the manufacturing crisis as it has been in response to the financial crisis."
A call for a similar rate cut came Wednesday from the Canadian Auto Workers union. "The U.S. Fed is taking the broader view, recognizing that central bankers have responsibility for the whole economy, not just inflation," said CAW economist Jim Stanford. "It's time the Bank of Canada took a similarly broad view."
Rate cut suggestions aren't just coming from organized labour. National Bank Financial issued a call for a trim, noting that the loonie has gained 16 per cent against the U.S. buck this year and 5.5 per cent in just a month.
"This is an awful lot of tightening in very little time, even for a country with great fundamentals," said National Bank economist Stéfane Marion. "In our opinion, the [Bank of Canada] should release some pressure and lower rates on Oct. 16."
Finance Minister Jim Flaherty said he called Dodge on Thursday, but wouldn't spell out what they talked about. He would not be drawn into whether there should be a rate cut, saying that's up to the bank.
Dodge himself has said nothing public this week. On Sept. 12, he described the Bank of Canada's 4.5 per cent overnight rate as "appropriate."
