By Ismail Shakil

OTTAWA (Reuters) -The affect of upper U.S. rates of interest on the Canadian greenback will not be a “main concern,” and the Financial institution of Canada (BoC) must react provided that there’s a substantial depreciation of the , Governor Tiff Macklem stated on Thursday.

Macklem, showing earlier than a Canadian Senate committee, was requested if the Federal Reserve’s persevering with to lift charges may result in the weakening of the Canadian greenback and hinder the BoC’s plan to tame excessive inflation.

Sometimes, larger charges in the USA than in Canada would strengthen the buck over the loonie.

“That’s not a serious concern. We have now an unbiased financial coverage, we have now a versatile trade charge,” Macklem informed a Senate committee. In a floating trade charge regime, a foreign money’s degree is set by provide and demand out there.

“It is one thing we’ll must take into consideration if the (Canadian) greenback have been to depreciate significantly,” Macklem stated.

The Canadian greenback has weakened about 11% towards its U.S. counterpart since June 2021, when inflation began to choose up, although year-to-date it’s up 0.6% towards buck.

The BoC raised charges at a file tempo over the previous yr to chill inflation, after which grew to become the primary main central financial institution to pause financial tightening. It has left its key coverage charge at a 15-year excessive of 4.50% at its final two policy-setting conferences.

The U.S. Federal Reserve, additionally combating excessive inflation, has continued elevating charges and is predicted to ship one other 25-basis-point hike in Could to take its key coverage charge to the 5.00%-5.25% vary, in keeping with Reuters’ ballot of economists.

“The Canadian greenback, it has been moderately steady … and largely that displays the truth that the U.S. has additionally been elevating rates of interest very quickly,” Macklem stated.

“I do not see an enormous downside if the U.S. goes a little bit larger than us. I believe that is form of already constructed into the market,” he stated.