Canadians should get used to lower dollar: Bank of Canada governor

The Bank of Canada says our country has no choice but to ride out the economic suffering brought on by low commodity prices.

Jan 7 Weakness in the Canadian dollar is the most important factor in helping Canada adjust to low commodity prices, Bank of Canada Governor Stephen Poloz said in a speech on Thursday, pledging to steer monetary policy independently of the U.S. Federal Reserve.

“The forces that have been set in motion simply must work themselves out”, Poloz said in a prepared text of a speech at Ottawa City Hall.

The loonie has been trading progressively lower for some time, partly because of the lower value of crude oil and other commodities, as well as slow economic growth and the US dollar’s rise against most major currencies.

Adjustments to such shocks can also be aided by fiscal policy and changes in labor-market rules, Poloz said.

Oil prices ducked under US$34 a barrel this week and are at their lowest level since 2008.

The last time Canada’s dollar was worth less than 71 cents was in August 2003, as it was recovering from a historic low of 61.79 cents set in January 2002.

Those increased exports will eventually mean more growth and rising investment in the non-resource sectors of the economy, and more employment.

Since mid-2014 – when oil prices started to free-fall – Poloz said the country has lost more than $50 billion in national income, or about $1,500 per Canadian, as measured by the terms of trade. This shock is reversing trends established in Canada over the past decade, and policy-makers should facilitate the necessary economic adjustments. 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. The options include lowering the bank’s trend-setting interest rate into negative territory.

Poloz made a surprise interest-rate cut in January of a year ago, when he was early to predict falling crude oil prices would damage the economy.

The new federal government has also promised to inject some life into the economy by pumping billions into infrastructure spending over the coming years.