The Bank of Canada dropped a surprise interest rate cut on Wednesday from 1% to 0.75%, the latest move since September 2010.
BOC cited a threat to the country’s economic growth and inflation targets from the drop in oil prices. The bank assured that it is ready to ease policy if necessary.
"We must remember that the world changes fast and if it changes again, we have the ability to take out more insurance or on the reverse, to reduce how much insurance we've taken out," Governor Stephen Poloz said.
He said the BOC’s move aims to provide Canada an “insurance” against oil price shocks and risks, as it is one of the world’s biggest oil producers.
Before considering the dramatic cut, Poloz said BOC had projected it would take until the end of 2017 for the economy to use up excess capacity.
"While it is true that a lower profile for interest rates may exacerbate household imbalances at the margin by encouraging more borrowing, the far more important effect will be to mitigate those imbalances by cushioning the decline in income and employment caused by lower oil prices," he said.
"A soft landing in the housing sector continues to be the most likely scenario," the bank said.
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