A senior Bank of Canada official stated that the unconventional measures taken during the pandemic helped stimulate the economy, but the criteria for implementing quantitative easing again will be stringent.
These remarks were made on June 13 during a speech in Ottawa to the Canadian Association for Business Economics as part of the central bank’s efforts to regain public trust and enhance transparency in its operations.
With interest rates already at their lowest in 2020, deputy governor Sharon Kozicki explained that the central bank opted to increase its purchases of government bonds, a strategy known as quantitative easing, to maintain low interest rates.
Alongside providing extraordinary forward guidance, this approach effectively kept interest rates low and supported economic growth.
This marked the first time the central bank had utilized quantitative easing and only the second time it had employed forward guidance to aid the economy (the first instance being during the financial crisis).
Ms. Kozicki acknowledged the unprecedented economic shock faced by the bank when deciding to implement quantitative easing, underscoring the exceptional nature of the action.
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She emphasized, “The threshold for reintroducing QE is very high.”
Ms. Kozicki mentioned that the bank is conducting a comprehensive review of the pandemic-era decisions to glean insights from its actions.
She added, “Although this review is a significant step, it is not definitive. Ongoing inquiries will influence the potential use of our extraordinary tools in future scenarios. These inquiries are especially crucial in a landscape where future crises may differ from those of the past.”
Last week, the Bank of Canada reduced its key interest rate by a quarter-point to 4.75 percent. The bank indicated that further rate cuts could be expected if inflation continues to decline, but decisions will be made on a case-by-case basis.
The summary of the central bank’s discussions leading to the interest rate cut will be published on June 19.
