(Adds remarks on oil dependency and on China)
By Mike De Souza
CALGARY, Alberta, Sept 21 (Reuters) - The fall in the
Canadian dollar has been an important factor in helping the
economy adjust to lower oil and commodity prices, and the Bank
of Canada must not stand in the way, Governor Stephen Poloz said
on Monday.
"We can't do much about resource price shocks. But our
policy can help the economy adjust to them," he said in a speech
in Canada's oil capital of Calgary, Alberta, hit badly by the
steep fall in crude oil prices.
"In particular, our floating exchange rate helps absorb some
of the impact of the price movements and sends signals that
facilitate adjustments."
Poloz, who used to head Canada's government export agency,
has emphasized the need for a rotation away from household
demand to exports and business investment, leading some analysts
to suggest he is dovish on the dollar.
"The floating currency is helping to reduce the
disinflationary risks that have come with the cut in our
national income (from cheaper oil)," he said.
"Further, allowing the currency to float frees the Bank of
Canada to concentrate our single policy tool on our single
target, which is inflation. If we tried to offset these currency
movements, we would end up frustrating the natural shifts in
economic resources."
Poloz repeated that the bank would "look through" temporary
upward pressure on core inflation that results from a lower
currency boosting import prices. He reiterated the bank's
estimate in July of underlying inflation of 1.5 percent to 1.7
percent.
Policymakers can help adjustments by encouraging economic
flexibility, allowing necessary changes to take place and not
frustrating the flow of investment or labor from one region to
another, he said.
"Canada has seen this movie before; we've managed well in
the past, and I'm confident we will continue to manage it well
in the future," he said.
He did underline the uncertainty surrounding oil, saying
that based on conversations he has had in the last couple weeks,
many oil firms are still revising their longer-term crude price
forecasts.
However, in a question-and-answer period, Poloz took issue
with the idea that Canada was too resource-dependent, saying the
economy remained highly diversified but that resources were good
for any economy to have.
In his speech, he said the declining Chinese growth rate had
impacted resource prices, but he noted the Chinese economy is
the world's second largest and would remain resource-intensive
for quite some time.
(Writing by Randall Palmer in Ottawa; Editing by Alan Crosby)