UPDATE 1-Bank of Canada studying financial stability, policy ties

(Adds quotes from Q&A, dateline, bylines)
By Jason Lange and Howard Schneider
WASHINGTON, Oct 12 (Reuters) - Assessing the costs and
benefits of possible monetary policy actions to address
financial stability concerns remains a priority ahead of the
renewal of the Bank of Canada's inflation target agreement next
year, Governor Stephen Poloz said on Monday.
As part of its research, the bank is gathering empirical
evidence about the effects of household debt levels on monetary
policy, Poloz said is his last scheduled public appearance
before an Oct. 21 interest rate decision.
The bank is also researching financial imbalances in the
household sector to find the best way to minimize the risk of
future crises and is developing models that will be better at
quantifying the impact of using monetary policy to combat the
build-up of imbalances.
"We will continue to strive for a better understanding of
the interactions between monetary policy and financial
stability, and I expect to see a large amount of groundbreaking
research that will shed light on various aspects of this
relationship," Poloz said in a speech at the annual meeting of
the National Association for Business Economics.
The bank aims to keep inflation at the midpoint of a 1
percent to 3 percent target range and its target agreement with
the federal government is up for a five-year renewal in 2016.
Poloz said again on Monday that the bar for change is high.
During a question and answer session with the audience,
Poloz said that the strengthening of the U.S. economy is "having
the expected effects on Canadian exports."
A pick up in exports is key to the Bank of Canada's view
that the economy will regain momentum after being in a mild
recession in the first half of the year. While recent data
showed exports dipped in August, the sector saw strong growth
over the previous two months.
The Bank of Canada has cut interest rates twice this year to
stave off the economic blow from cheap oil prices, but some have
voiced concern that the cheaper borrowing costs will add more
fuel to an already hot housing market.
In a speech that largely echoed one he gave on Saturday,
Poloz justified the rate cuts as being required by the oil price
crash cutting into national income and threatening to drive
inflation below target for an unacceptably long time. The
central bank is widely expected to stand pat next week.
urn:newsml:reuters.com:*:nL1N12A0IC BOCWATCH