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Bank of Canada governor says interest rates will probably stay low

FILE PHOTO: Bank of Canada Governor Stephen Poloz attends a luncheon for Women in Capital Markets (WCM) in Toronto, Ontario, Canada March 5, 2020. REUTERS/Chris Helgren/File Photo

OTTAWA (Reuters) - Bank of Canada Governor Stephen Poloz said on Thursday that interest rates were probably going to stay low and that the damage done by the coronavirus outbreak might not be as bad as some fear.

Poloz, who is retiring next month, said he felt Canada was still on track to meet the best-case scenario for recovery that the central bank released in April, where growth shrinks by 15% in the second quarter compared with the fourth quarter of 2019 before the coronavirus pandemic.

The bank - which targets 2% inflation - has slashed its key overnight interest rate three times to a record-low 0.25% since the crisis started and markets do not expect another move before next year.

“We are in an era where interest rates are probably going to stay low, for demographic reasons and economic growth reasons. I don’t know how low really but they’re just not going to be like where they were 20 years ago or 30 years ago,” Poloz said in remarks to reporters ahead of his June 3 retirement.

“So central banks will have less room to maneuver.”

Canada’s overall inflation rate turned negative in April and Poloz said: “If it’s going to be underperforming, then we’re going to be easier for longer. That’s the essence of the (2%) target and that’s why it’s there.”

Poloz said he felt some of the talk about the damage that could be done by the coronavirus outbreak was “a little too dire.” Growth was plunging because the economy had been shut down, not because of behavioral factors, he said.

Production should return very rapidly once shutdowns linked to the outbreak were ended, he said.

Asked about a possible second wave of the coronavirus, Poloz said the damage could be similar to that outlined in the bank’s worst-case scenario, where second-quarter gross domestic product plunges by 30% from last year’s fourth quarter.

Reporting by Kelsey Johnson; Additional reporting by David Ljunggren; Editing by Peter Cooney

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