Poloz pointed to Canada’s flexible exchange rate, which closely follows the ups and downs of crude prices, as one of those “minor shock absorbers” that help soften the blow for some parts of the economy. The OPEC cartel’s determination to maintain high production rates despite a slowing world economy means continuing pressure on oil prices and, by extension, the Canadian dollar.
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Poloz also said he was not too anxious about stock market turmoil in China, given that the world’s second largest economy is still growing at a healthy rate.
A benchmark oil price ducked under US$34 a barrel on Wednesday, the lowest level since 2008, but was even lower on Thursday.
Poloz made a surprise interest-rate cut in January of past year, when he was early to predict falling crude oil prices would damage the economy.
On Thursday, the loonie was trading around 71 cents USA, about where it was in 2003.
The sharp decline in energy and other resource prices is an important force affecting virtually every economy over the past year, Poloz said.
“This is helping to offset the weakness in the resource sector tied to lower commodity prices, but this natural process will take time to translate into more investment spending and new job creation”, Poloz said.
However, the country’s economic data has detected signs of recovery, he said. Poloz says non-resources sectors, meanwhile, have seen rising employment and investment.
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The comments are Poloz’s last before a January 20 interest-rate decision, and comes with Canada’s dollar around 12-year lows on speculation he will cut for a third time in response to a crash in commodity prices. Under his leadership, the central bank lowered its trend-setting interest rate twice in the last 12 months to help limit the impact. Bank of Montreal chief economist Douglas Porter told a morning gathering of leading economists that it’s going to be a “very close call” whether the fourth quarter of 2015 saw any economic growth. This shock is reversing trends established in Canada over the past decade, and policy-makers should facilitate the necessary economic adjustments. “At the other end, the European Central Bank (ECB) recently cut its deposit rate to negative 0.3 per cent”.
