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BoC's Poloz says low interest rates needed to keep deflation at bay

OTTAWA - Bank of Canada governor Stephen Poloz says he needs to keep interest rates at historically low levels to head off the risk of a deflationary trap.

The central banker says in a speech to the Canadian Club in Montreal that may take a couple of years before inflation returns to the two-per-cent target that is healthiest for the economy.

Poloz's speech suggests he could be cutting rates right now if he weren't fearful of adding more fuel to an already overheated housing market and near record-high levels of household debt.

His policy, he says, is to balance the risks of low inflation with the danger of further overheating the housing market, both of which would have damaging repercussions on the economy.

He says the current low one-per-cent trendsetting policy rate is the appropriate policy response at the moment.

In October, Poloz broke with his predecessor in dropping the bank's tightening bias, signalling that the bank's next policy move was just as likely to be a cut in interest rates as it was a hike.

The Canadian Press

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