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Bank of Canada says would not necessarily emulate Fed rate hike

BoC

If the U.S. Federal Reserve raises interest rates the Bank of Canada would not necessarily be pressured to follow suit, one of the Canadian central bank's economists said on Thursday.

Economist Rhys Mendes told the House of Commons finance committee that the Bank of Canada would view a Fed rate hike as a sign the U.S. economy is strengthening, which would be good for Canada.

Asked whether a U.S. rate hike would put pressure on the Bank of Canada to also raise rates, Mendes replied: "Not necessarily. The bank targets inflation in Canada and decisions regarding monetary policy in Canada would be based on the outlook for inflation."

The Bank of Canada shocked markets by cutting rates in January to provide what it called insurance against the damage done to the economy by dropping oil prices. Canada is a major oil producer.

Mendes told the committee that in the absence of any monetary policy response to falling oil by the bank, overall Canadian output would have been about 1.4 percent lower by the end of 2016.

He also said the risks to the bank's assumed price for Brent crude of $60 a barrel were tilted to the upside, given that a substantial amount of existing oil production is not economic at that level.

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