Canada's Trudeau says monetary policy impact nearing its limits

Canadian Prime Minister Justin Trudeau meets with Thomson Reuters CEO Jim Smith (L) in New York March 17, 2016. REUTERS/Brendan McDermid

OTTAWA (Reuters) - Canada should use more fiscal measures to boost the economy rather than relying on monetary policy, the country’s prime minister said on Thursday, days before the new government will unveil a budget expected to feature stimulus spending.

“We should be using fiscal levers a little more and not just expecting monetary policy to have to fix the challenge we’re in,” Prime Minister Justin Trudeau said during an interview with Bloomberg television. “I think we’re approaching the limit of the impact of monetary policy alone.”

Canada’s economy has been struggling with the plunge in the price of oil, a major export, and the Bank of Canada cut interest rates twice last year to offset the shock. So far this year, the central bank has held rates where they are as it waits to incorporate the government’s budget measures into its economic forecast.

Trudeau won last year’s election on a vow to run budget deficits in order to spend money on infrastructure in an effort to boost economic growth.

The Liberal government is set to exceed the up to C$10 billion ($7.68 billion) deficit it had originally promised for 2016-17 when it releases its first budget on March 22. A Reuters poll forecast the government will see a C$28.6 billion shortfall in the coming fiscal year.

In a wide-ranging interview, Trudeau said that there was strong discussion at the recent Group of 20 finance minister’s meeting around the question of what the limits to monetary policy are and whether more fiscal measures are needed.

Trudeau said Canada can be an example to the world on that debate, though he noted the country has more stability than other regions.

Asked about whether there was a preference for a stronger or weaker Canadian dollar, Trudeau said that for countries that try to exert control over monetary policy or the price of their currency, “it doesn’t end well.”

“The Canadian dollar will always bounce around a bit, but there’s a range in which it is comfortable and we tend to be in that now,” Trudeau said.

Editing by Chizu Nomiyama and Phil Berlowitz