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Poloz says Canada’s economic growth at risk if low oil price persists

Bank of Canada Governor Stephen Poloz appears before the Senate Standing Committee on Banking, Trade and Commerce in Ottawa on Oct. 29.


Bank of Canada Governor Stephen Poloz says the sudden plunge in the price of crude will knock roughly a quarter percentage-point off economic growth next year.

Making his first public remarks since last week, when he postponed a planned news conference and appearances before House of Commons and Senate committees after the deadly shooting near Parliament Hill, Mr. Poloz said oil at less than $90 (U.S.) a barrel would deliver a significant hit to the Canadian economy.

"A quarter-point matters a lot," he said on Wednesday in testimony before the Senate banking, trade and commerce committee. He told the committee that the economy is only expected to grow by 2 or 2 1/2 per cent next year.

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He also acknowledged that cheaper oil could cost jobs in the energy sector and reduce demand for housing. "It might cause a change in the terms of the balance in the price of housing," he said. He also pointed out that the economy must grow at a rate of at least 2 per cent to start soaking up excess capacity and return to strength.

But Mr. Poloz added that cheaper oil is not "serious in a macroeconomic sense."

And cheaper oil won't change the bank's projection that the economy will return to full capacity in the second half of 2016, he said.

If oil is a negative, Mr. Poloz said the U.S. Federal Reserve's decision Wednesday to end its massive injections of liquidity is "unambiguously a good thing" for the global economy.

It is a clear sign the U.S. economy is "gaining traction," Mr. Poloz told the committee.

Nonetheless, Mr. Poloz said it would still take "a considerable time" for all the liquidity created by the Fed's so-called quantitative-easing program to work its way through the system, and eventually push up rates, mortgages and other financial products.

"They are no longer adding liquidity into the system, but a lot of liquidity is still in," he said.

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The central bank left its benchmark overnight-lending rate unchanged at 1 per cent last week, extending to more than four years its longest interest-rate freeze since the 1950s. In its statement, the central bank cited the sudden drop in the price of oil for its decision to continue holding off on raising its key overnight lending rate.

Last week, the bank also formally ended its practice of explicitly committing to future changes in its key interest rate – so-called forward guidance – by dropping the word "neutral" from its rate announcement.

That prompted Quebec Liberal Senator Paul Massicotte to suggest that the Bank of Canada is leaving "Canadians in the dark" about where the economy is headed. He asked whether Mr. Poloz's predecessors, Mark Carney and David Dodge, were wrong to tell people where the bank's interest-rate policy was going.

Mr. Poloz staunchly defended the bank's decision, warning that forward guidance has become "like an addiction" to financial markets. He said they must "do their job" by weighing risks in economy.

Except in exceptional circumstances, such as another financial crisis, the bank will no longer tip its hat on which direction it will move its benchmark overnight-lending rate, he said.

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About the Author
National Business Correspondent

Barrie McKenna is correspondent and columnist in The Globe and Mail's Ottawa bureau. From 1997 until 2010, he covered Washington from The Globe's bureau in the U.S. capital. During his U.S. posting, he traveled widely, filing stories from more than 30 states. Mr. McKenna has also been a frequent visitor to Japan and South Korea on reporting assignments. More


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