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Recent Rate Cut Buys Time To Assess Impact Of Drop In Oil Prices - Stephen Poloz

Bank of Canada's Governor Stephen Poloz said on Tuesday that last month's rate cut will buy the bank some time to assess the economic impacts of the plunge in oil prices.

"The oil-price shock is an important setback in our progress toward full capacity, full employment and stable inflation because it is a net negative for economic growth," Mr. Poloz said in a speech in London, Ont.

"And because lower oil prices mean lower Canadian income, the shock will worsen the debt-to-income ratio of Canadian households, thereby increasing financial stability risks."

He said that the bank has been setting policy with a view to balance the risks facing both the outlook for returning inflation sustainably to its target, and the risks to financial stability such as those posed by the indebtedness of Canadian households.

Last month's rate cut was intended to take out some insurance against both sets of risks, he said.

"It gives us greater confidence that we can get back to full capacity and stable inflation by the end of 2016, instead of sometime in 2017, and it will cushion the decline in income and employment, as well as the rise in the debt-to-income ratio, that lower oil prices will bring, " Poloz said

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