Evidence of meeting #12 for Finance in the 45th Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was economy.
A video is available from Parliament.
Conservative
Greg McLean Conservative Calgary Centre, AB
Do you think that has no effect on the actual exchange rate?
Governor, Bank of Canada
Yes, it certainly has some effect on the exchange rate. The Canadian dollar actually has been pretty stable vis-à-vis the U.S. dollar. There's more than one thing going on. Canadian rates below the U.S. rates will tend to weaken the Canadian dollar. Actually, that's partly how monetary policy works. That's partly—
Conservative
Greg McLean Conservative Calgary Centre, AB
Exactly. Thank you.
The point I'm making is that by having—
Governor, Bank of Canada
That makes monetary policy more stimulated and supports our exports, but it's not the dominant thing.
Conservative
Greg McLean Conservative Calgary Centre, AB
—an interest rate 150-plus basis points below the U.S., we are actually creating less of a market for buyers of Canadian debt to come into the Canadian market. Let's accept that the U.S. market is the most liquid market, so more buyers of debt would go to the U.S. market. Is that correct?
Governor, Bank of Canada
I'm not sure I'm following you. The way we think about it is that if the exchange rate depreciates, our exports are more competitive.
Conservative
Greg McLean Conservative Calgary Centre, AB
If we're 150-plus basis points behind the U.S. in terms of the interest rates we're offering to bondholders, and if the U.S. is more attractive in terms of buy security, do you think those bondholders would go elsewhere...to the U.S.?
Liberal
Liberal
Kent MacDonald Liberal Cardigan, PE
Thank you, Chair.
I recently met with representatives of credit unions from Atlantic Canada. They had some concerns with different issues, but one they brought up was increased consumer debt stress.
Is there anything that can be done to lessen the risk on the smaller financial institutions and the credit unions vis-à-vis the charter banks, which are larger structures?
Governor, Bank of Canada
I'll turn to Carolyn. She used to be a supervisor of credit unions in British Columbia.
Senior Deputy Governor, Bank of Canada
The key words are “used to be.” That was quite a long time ago.
My knowledge is a bit dated, but let me just say that the problem with small financial institutions is that there's a certain amount of scale and cost that goes into running a financial institution. There's technology. There's dealing with regulation. There's making sure that you have innovative products and services. Customers want branches and technology. There's a high level of fixed cost, and that's really what's putting pressure on small financial institutions and small credit unions, for sure.
Liberal
Kent MacDonald Liberal Cardigan, PE
The processes they're going through by consolidating is probably going to help them long term.
Senior Deputy Governor, Bank of Canada
Yes. That's been the answer over the last 15 or 20 years. The credit union system has gradually consolidated.
Liberal
Kent MacDonald Liberal Cardigan, PE
You spoke earlier about trade diversification, and that it's not something controlled by the fiscal policy of Canada.
I met with different agricultural commodities groups over the two weeks prior to the budget. A lot of them are talking about the need for policies that are going to give us trade. We need to trade with all the countries we can diversify in. We don't just have to pivot from the United States and increase trade in Asia or China. We need a lot of markets for agricultural commodities.
Is there anything in the fiscal measures that the bank controls, other than interest rates, that would help in that area?
Senior Deputy Governor, Bank of Canada
I'm going to come back to the point I made earlier. The single biggest thing we can do to facilitate investment is to keep inflation under control.
Liberal
Kent MacDonald Liberal Cardigan, PE
Getting back to budget 2025, which was introduced yesterday, we've seen large investments in community infrastructure, housing and industries.
A region like mine, Atlantic Canada, has a seasonal economy. How do these types of investments coupled with a lower interest rate help productivity in Atlantic Canada?
Governor, Bank of Canada
It's a tough question.
People want houses, and housing affordability is a big issue in this country. We've had a housing affordability problem at very low interest rates. We've had a housing affordability problem at high interest rates, so I don't think we're going to solve this with interest rates. If you want houses to be more affordable, we need to build more houses and we need to lower the cost of building houses.
This isn't something that's going to get fixed quickly, because we've had a buildup over many years. It's going to take some time to get out of that hole. I will say that we are pleased to see that the government at all levels—and it is very much at all levels: federal, provincial and, importantly, municipal—are working together better than they have in the past. If these programs are going to work, you're going to have to see even more co-operation at all levels of government.
Senior Deputy Governor, Bank of Canada
To add to that, it is hard to find a direct impact to housing, but employers need their employees to have houses where the jobs are. Having affordable housing in large cities like Vancouver and Toronto will help attract employees at a reasonable wage so that companies can find the workers they need to grow their businesses. Housing is a pretty important contributor to attracting and retaining employees.
