Bank of Canada says soaring loonie stifling economy

OTTAWA,(June 17, 2003) — The Bank of Canada has confirmed the recent appreciation in the value of the Canadian dollar against the U.S. greenback is contributing to a slowdown in economic activity — a claim that has been voiced by shipping and trucking companies that do business in the U.S. for months. The Canadian loonie has reached nearly 76 cents (US) as of yesterday.

In a speech to a Montreal business audience last week, Bank of Canada governor David Dodge said the trend will “have a dampening influence on aggregate demand later this year and next.” He did add, however, an expected rebound in the U.S. later this year may soften the impact.

On the same day, Statistics Canada released economic indicators showing the value of Canadian manufacturing shipments declined 3.4% in April — about three times the drop that the markets were anticipating. In addition, the ratio of inventories to shipments, which are an indicator of manufacturers’ ability to clear inventory, reached their highest levels since the end of 2001.

The news prompted Canadian Trucking Alliance the CEO David Bradley to call on the Bank of Canada to lower interests rates as soon as possible. “U.S. interest rates can’t go much lower. They have cut taxes. The war is over and fuel prices have leveled off, but the US economy is still grinding its wheels. There’s not much left but to try and stimulate foreign demand for US goods and services by allowing the dollar to slip in value,” Bradley said.

“Economic conditions have changed sufficiently that the Bank of Canada should lower interest rates to moderate the increase in the value of the dollar and provide stimulus to the slackening economy,” he continued. “Regardless, until then and even with a reduction in interest rates, carriers
will have to deal with the impact on their profit margins by pricing their service accordingly.”