Immediate worry of COVID-19 spurred Bank of Canada rate cut, Poloz says

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Canada's top central banker says concerns about the immediate impact of the novel coronavirus spurred the Bank of Canada to cut its trend-setting interest rate this week.

Governor Stephen Poloz says in a luncheon speech that worries about the downside risks to the economy outweighed continuing concerns that cutting rates would fan financial vulnerabilities in Canada, such as high household debt.

The reduction of the bank's key rate target of half a percentage point to 1.25 per cent marked the first cut since the summer of 2015 and brought the rate to its lowest level since early 2018.

Among the effects of the outbreak are weakened commodity prices that Poloz says will add to tough times in oil-producing regions, before likely spreading the financial hit elsewhere as people affected ``spend less money on everything.''

He says a drop in rates could stabilize the housing market, instead of contribute to froth, if a slide in consumer confidence reduces activity.

Poloz also left the door open to further rate cuts should the economic circumstances require it.