Macklem Says Bank of Canada Will Maintain Extraordinary Stimulus

(Bloomberg) -- The Bank of Canada plans to maintain extraordinary stimulus for as long as needed to help the nation’s economy fully recover from the crisis, Governor Tiff Macklem said.

In spite of the strong rebound in recent months, growth is likely to decelerate as the economy enters a recuperation phase that is expected to be “slow and choppy,” Macklem said Thursday in a speech by video-conference to the Canadian Chamber of Commerce.

“We will be supporting the economy through the full length of the recovery, helping to bring it back to full capacity with full employment,” Macklem said. Policy makers “agreed that as the economy shifts from reopening to recuperation, it will continue to need extraordinary monetary policy support.”

The speech comes a day after a policy statement where the Bank of Canada reiterated its pledge to keep interest rates at historic lows until excess capacity is absorbed, and continue acquiring federal government bonds until the recovery is “well underway.” The language on policy Thursday by Macklem is largely in line with the statement.

Thursday’s remarks focused on how uneven downturns -- like this one that has impacted women and youth disproportionately -- also tend to be longer and deeper, requiring policy support.

“The loss of jobs for women, youth and low-wage workers is a problem for us all,” Macklem said. “If these workers become discouraged and leave the labour force or lose valuable skills over time, their reduced economic participation will lower our potential growth, limiting living standards for everyone.”

Back to Work

The best way to improve the economic situation is to get Canadians back to work, Macklem said, and that’s what the bank’s actions are designed to support. The bank has lowered its policy rate to 0.25% and launched a series of liquidity and asset purchase programs aimed at ensuring credit is accessible for businesses and consumers.

So far, Canada’s initial rebound from the Covid-19 lockdowns has been better than expected with some industries bouncing back more quickly than others from the pent-up-demand. However, with the bulk of economic re-openings in the past and with uncertainty about the future course of the virus, the bank cautions the pace of the recovery will slow.

“We don’t expect the strong rebound we’ve seen to continue at the same pace in the months ahead. Business confidence and investment remain subdued,” Macklem said. “More fundamentally, uncertainty about the future course of the pandemic will continue to restrain the economy, particularly in sectors that involve close contact.”

QE Adjustments

The bank will also continue it’s asset purchase program until a recovery is underway and left the door open to making adjustments to it. Macklem reiterated the central bank will be calibrating its asset purchase program depending on stimulus needed.

“As we move from reopening to recuperation we will be continuing to calibrate or if you want a simpler word, adjust, our quantitative easing program to deliver the amount of monetary stimulus needed to support the recovery and get inflation back to target,” Macklem told reporters after the speech.

That means the bank will assess what to buy as well as how much to buy. “Could be more, could be less,” he said.

On housing, the governor said the recent strength in the country’s property market is largely a result of pent-up demand, and that he expects housing activity to “moderate.” Modest growth of household credit and increased savings rates have probably reduced vulnerabilities in that sector, he said.

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