BoC’s Macklem: Not Considering Negative Rates

The Bank of Canada (BoC) is not considering negative interest rates and now sees its asset purchase program having a stimulative effect, BoC Governor Tiff Macklem said Monday.

Macklem, in remarks prepared for delivery during an online event, said the Bank expects quick job gains as the economy reopens, but growth is likely to slow after that, and the outlook remains uncertain.

“Some central banks have taken their policy rates below zero,” Macklem said. “We feel that bringing that rate into negative territory could lead to distortions in the behaviour of financial institutions.”

With financial markets now working better, the bank’s asset purchase program is having the desired effect, and the bank remains committed to maintaining its purchases at the current rate, Macklem said.

“At our last interest rate announcement, on June 3, we indicated that with market functioning improved and containment restrictions easing, our focus is shifting to supporting output and employment,” he said.

“We also reiterated our commitment to continue large-scale asset purchases until the economic recovery is well underway. With market functioning restored, these purchases are working through more channels to deliver stimulus.”

On the growth outlook, key will be to gauge the lingering impact of the pandemic and getting people back to work, Macklem said.

“Until people are back at work and feel more confident, they will remain cautious with their spending,” he said.

“As the economy reopens, we should see very strong job growth. We should also see some pent-up demand giving a boost to spending. But not everyone’s job will come back, and uncertainty will linger. As a result, we expect the quick rebound of the reopening phase of the recovery will give way to a more gradual recuperation phase, with weak demand,” Macklem said.

“If, as we expect, supply is restored more quickly than demand, this could lead to a large gap between the two, putting a lot of downward pressure on inflation. Our main concern is to avoid a persistent drop in inflation by helping Canadians get back to work,” he concluded.

www.macenews.com

Julie Ros

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