Advertisement

Bank of Canada stimulus actions should reach average Canadian: Stephen Poloz

Finance Minister Morneau announces Tiff Macklem as new Bank of Canada governor
WATCH: Finance Minister Morneau announces Tiff Macklem as new Bank of Canada governor

Canada’s top central banker says monetary stimulus on the scale that the country is seeing now must ultimately reach the average Canadian to help an economic recovery from the COVID-19 crisis.

In a speech Thursday afternoon, Bank of Canada governor Stephen Poloz says a recovery from the current economic crisis requires monetary policy to play a significant role once public health restrictions ease.

But for the recovery to really take off, stimulus actions need to “reach the ultimate borrower,” Poloz says.

READ MORE: TSX falls before ending one of its best months in years

In the text of his speech posted online, Poloz points to how longer-term mortgage rates were “sticky” after the Bank of Canada lowered its target overnight rate “because banks were still funding themselves at relatively steep rates in bond markets.”

Story continues below advertisement

Speaking to the Ivey School of Business in London, Ont., today, Poloz recalls the significance of the economic shock hitting him during a global meeting of top central bankers on March 8, where governors from China, Italy and South Korea detailed their experiences.

Coronavirus outbreak: Bank of Canada keeps rates steady as economy sees “significant contraction”
Coronavirus outbreak: Bank of Canada keeps rates steady as economy sees “significant contraction”

“I also attended a memorial service for a friend later that day. That was my last social activity, and we were afraid to shake hands or touch the food,” Poloz says.

“I will always recall my dear friend Jim’s memorial service as the moment when the penny truly dropped.”

Since that time, the central bank has cut its key interest from 1.75 per cent to 0.25 per cent, which is essentially as low it can go.

READ MORE: Canada’s GDP growth was already flat in February, StatCan data shows

Story continues below advertisement

It has also undertaken an unprecedented bond-purchasing program to pump liquidity in financial markets.

The bank has also resisted putting any specific numbers on its outlook for the economy, citing the uncertainty around how soon public health officials can contain the pandemic.

Coronavirus around the world: April 30, 2020
Coronavirus around the world: April 30, 2020

Poloz says comparisons to past downturns are “unhelpful, for they use arithmetic to compare various events that had very different effects on people.”

He says the situation today is more akin to a natural disaster than a depression with fiscal policy in place “to essentially stop the clock and later restart” the economy.

READ MORE: Rent is due May 1. Experts say CERB isn’t enough for some Canadian tenants

Poloz says the central bank will keep a close eye to avoid rapid inflation during a recovery.

Story continues below advertisement

“We are alert to this risk and have the tools to respond should it materialize. But at present we see the risk of disinflation as more immediate,” he says.

Coronavirus outbreak: Singh says Liberal government should boost student benefits amid pandemic
Coronavirus outbreak: Singh says Liberal government should boost student benefits amid pandemic