Thorunn Howatt
Northern News Services

Yellowknife (Sep 26/01) - The terrorist attacks on the U.S. have caused rising oil prices and volatile diamond sales, both of which have an enormous effect on the territorial economy, said Charles Freedman, deputy governor of the Bank of Canada.

Deputy governor of the Bank of Canada, Charles Freedman: Projecting a drop in inflation based on stable energy prices. - Thorunn Howatt/NNSL photo

"People have tried to make comparisons with the Gulf War," Freedman told Yellowknife business people on Monday.

The events of Sept. 11 could cause the rise of world oil prices, he said.

"Eighty per cent of our exports go to the United States," said Freedman.

Natural resources play a critical role in the growing territorial economy. The key to building up the Northern economy is attracting long-term investors and building up more resources.

"When commodity prices go up Canada is better off and the United States is worse off," said Freedman.

He describes the scenario as a seller's market and says the American energy craving is creating a positive exploration atmosphere in the North.

The Bank of Canada is projecting a drop in inflation based on stable energy prices.

But, "recent high prices have also helped the oil and gas sectors of the economy," he said.

Also, the effect of industries related to diamond mining, such as sorting, cutting, polishing and marketing, is forecast to triple the territory's manufacturing output in the next few years.

Ten years ago the Bank of Canada established inflation control targets and in 1995 settled on about two per cent. The bank raises or lowers their lending rate hoping to avoid booms and busts attached to resource-based economies like the one in the North.

Last week it lowered its rate to three and a half per cent following the American terrorist tragedy.