Economy Still Running Short
CBJ – The Bank of Canada says the recent drop in oil prices is the main reason for the Canadian economy operating below its potential.
Senior Deputy Governor Carolyn Wilkins laid out the reasons for the surprise move of recently cutting interest rates by 25 basis points, reiterating that the bank thought it would take too long to close the output gap if it did not act.
Wilkins said measures of slack in the labour market were showing greater unused capacity than broader economic measures.
“There is no doubt that the Canadian economy has room to grow,” Wilkins said in a prepared statement.
The Bank remains confident that with a stronger U.S. economy, a lower Canadian dollar and an accommodating monetary policy, the Canadian recovery is on track.
The central bank cut interest rates to 0.75% from 1% last month, citing the negative impact the dramatic drop in oil prices would have on economic growth and the bank’s inflation targets.