-Stephen Poloz, Bank of Canada Governor
The Bank of Canada Governor Stephen Poloz said the effect of the precipitous plunge of oil prices remains uncertain, but the rate cut last month will buy some time to evaluate its economic impact. Poloz said that sharp decline in oil prices is a net negative for growth of oil-exporting country, derailing progress towards reaching full capacity, full employment and stable inflation. Declining crude also means lower Canadian income, which increases debt-to-income ratio and financial stability risks. The rate cut gave the central bank greater confidence of a return to full capacity and stable inflation by the end of 2016, instead of 2017. It will also mitigate the drop in income and employment, as well as the jump in the debt-to-income ratio, triggered by lower oil prices. While the oil-price shock is of an "uncertain size," eventually improved exports due to a stronger US economy, the benefits of lower Canadian Dollar and more domestic consumption will begin gradually rolling in and help improve the situation.
After the unexpected interest rate cut in January, analysts began to wait for another one. The next rate-setting meeting, along with the BoC's quarterly Monetary Policy Report, which will update how policy makers view the impact of the oil prices on the Canadian economy and the inflation outlook, will take place on March 4.
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