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Bank of Canada Governor Stephen Poloz arrives at a news conference upon the release of the Monetary Policy Report in Ottawa April 15, 2015.

CHRIS WATTIE/REUTERS

Bank of Canada Governor Stephen Poloz said the damage from a drop in oil prices will disappear in the second half of this year.

The emphasis will shift from lower oil prices that eroded national income by 3 per cent to "positives" including stronger U.S. demand for Canadian goods in the next few months, Poloz said Friday in Washington during a panel discussion at the Export-Import Bank of the United States.

"It's a very front loaded or one-time kind of shock," Poloz said. "Starting in the second quarter we think the positives will be more important than the negatives, and certainly in the second half of this year, this shock should be fully behind us."

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Poloz, who was head of Canada's export financing agency before his appointment to the central bank in 2013, has focused on how quickly companies rebuild production after the global financial crisis. On April 20 he said there are signs his surprise January rate cut and stronger U.S. demand will help Canada's economy return to normal by the end of next year.

Poloz became the first Group of Seven central banker to ease monetary policy in response to the drop in oil prices, cutting the key rate in January to 0.75 per cent. He called it "insurance" against the impact of the downturn. In a statement last week, Poloz suggested the worst of the oil shock may be over.

Poloz said this week the world's largest economy, which consumes about three quarters of Canada's exports, has "great fundamentals," and he predicted it would perform better than most people expected.

"He's putting a lot of eggs in the U.S. basket," said David Tulk, chief Canada macro strategist at Toronto-Dominion Bank's TD Securities unit. "The risk is that the U.S. doesn't live up to his expectations. That opens the door to more dovishness in September or October."E

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