Bank of Canada (BoC) policymakers are hopeful the pandemic’s economic impact has peaked, but admit there’s much uncertainty how the recovery will unfold, BOC Deputy Governor Toni Gravelle said Thursday.
Gravelle, in remarks prepared for delivery during an online meeting, said the Bank will be watching economic data closely to gauge the pace of reopening, and how supply and demand recover from the shutdown effects. Recent data, though dire, did not show the economy suffered as much as the worst scenarios the Bank considered, he said.
At its recent policy council meeting, BoC chose to scale back some of its market programs in light of the improving financial picture, while leaving large-scale asset purchases in place.
“We saw some reasons to be hopeful that the worst can be avoided,” Gravelle said. “First, we noted that a gradual reopening of the economy is starting in most areas of the country. Spending on cars and houses has picked up, and measures of consumer confidence have increased from the low levels recorded last month.”
Gravelle said the Bank’s policy measures have worked to assure the economy and financial markets remain liquid and credit is flowing. “Despite the positive signs, though, many risks and uncertainties remain,” Gravelle said.
“A lot will depend on whether we as a country are successful in managing the risk of possible future waves of COVID-19, and the pace at which containment measures are lifted. This applies to the global economy as well as Canada’s.”
BoC will calibrate its monetary policy as data show how the recovery is proceeding, he said.
“Ultimately, the stance of the Bank’s monetary policy will depend a lot on what happens to the balance between what the economy can supply and what people demand, because this will affect the outlook for inflation,” he said.
“It is possible, for example, that economic supply could recover faster than demand if businesses reopen quickly but consumers remain cautious. In the lead up to our July MPR, and beyond, it will be key for us to understand how the pandemic has affected demand, employment and the economy’s capacity to produce goods and services.”
The bank will focus on recovering demand for Canada’s exports, among other things, Gravelle said. “As we get more data, we will have a better sense of the impact of the containment measures. These data will also help us answer a number of important questions: What’s going to happen with business and consumer confidence? Will the pandemic lead to lasting changes in household saving and spending habits? How many companies will be unable to reopen their doors, and how many job losses will be permanent? How quickly will those people who lose their jobs be able to find other work? How will companies adjust or rebuild global supply chains?”