Bank of Canada does not need to move interest rate in step with US Fed

Rising expectations the US Federal Reserve will raise its key interest rate next month.

November 17, 2016   by CP STAFF

WATERLOO, Ont. — An increase in interest rates by the US 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 in Waterloo, Ont.

The comments come amid rising expectations that the US Federal Reserve will raise its key interest rate next month.

Changes by the US 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 US Federal Reserve of its key interest rate would spark an increase in interest rates globally and strengthen the US 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 US 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% to 0.5%.

The Bank of Canada’s key interest rate target sits at 0.5% after it was cut twice last year.

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