By Steve Scherer and Ismail Shakil
(Reuters) -The banking stress in the United States and Europe has had a limited impact on Canada's financial system so far, Bank of Canada Governor Tiff Macklem said on Thursday, adding though that there was a need to actively monitor risks to the system.
"You're seeing a little bit of spillover to Canada, but honestly, it's really been quite muted," Macklem said when asked about how the country's financial system had been affected. "And I do think we do need to be vigilant."
Macklem spoke at the International Monetary Fund in Washington where he is attending an annual meeting.
Macklem said the bank routinely discusses risk management with banks, and that it was prepared to step in to provide liquidity if the domestic banking system were to come under severe strain, echoing comments made by Deputy Governor Toni Gravelle last month.
The failures of U.S. lenders Silicon Valley Bank and Signature Bank (OTC:SBNY), followed by Credit Suisse's rescue, are prompting central bankers to closely monitor the potential for banking stress to trigger a credit crunch.
On Wednesday the Bank of Canada (BoC) held its key overnight rate steady at 4.50%. After raising rates eight straight times through January, the BoC has held rates at its latest two policy meetings. It was the first major central bank in the world to pause its tightening campaign.
The bank on Wednesday pushed back against market expectations for a rate cut this year and indicated that the risk of a recession had diminished.
"Our economy remains in excess demand and labor markets are still tight. Unemployment is still very close to a record low," Macklem said on Thursday. "We can see past interest rate increases working their way through the economy, shrinking demand."