Macklem Says Canadian Economy Has Enough Stimulus for Now
Bank of Canada Governor Tiff Macklem said the nation’s economy is flush enough with stimulus to survive the current downturn and doesn’t need additional help from monetary policy.
In an interview with Bloomberg News after a rate decision on Wednesday, Macklem said policy makers considered whether more measures were needed to spur growth — including a micro-cut of their 0.25% overnight policy rate — but determined that “we have a considerable amount of stimulus in place.” The bank is expecting a quick recovery from a first-quarter contraction, a scenario that would eventually require it to pare back asset purchases.
“If the economy plays out in line or stronger with our outlook, then the economy is not going to need as much quantitative easing stimulus over time,” Macklem said. While the central bank has a number of tools it can use if needed to add stimulus, “in our base case we don’t expect that we will need to use them.”
In Wednesday’s decision, the central bank expressedoptimism the economy remains on track to fully repair damage from the pandemic by 2023, even as Canada struggles with a wave of new Covid-19 cases and lockdowns right now.
Bank of Canada Rate Decision and Briefing: TOPLive Transcript
Some analysts had speculated the central bank could turn bearish this week, with a fresh cut to shore up a recovery that is being hampered by a strengthening currency, on top of the worsening pandemic.
In the interview, Macklem said that the stabilization of financial markets has made a small rate cut a viable option, if needed.
“We discussed the degree of monetary stimulus we need, and if we thought we needed more, a micro cut was among the things we could do,” Macklem said by video conference. The bank’s governing council determined it wasn’t necessary, he said.
|What Bloomberg’s Economists Say…|
“Describing the domestic outlook as ‘stronger and more secure,’ the Bank of Canada is preparing to look through near-term economic contraction and instead anchor on a strengthened medium-term outlook. Vaccine rollout and substantial additional fiscal stimulus in the U.S. could prove powerful tailwinds starting in the second quarter.”
–Andrew Husby, Bloomberg economist
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To be sure, there’s no prospect of any quick withdrawal of stimulus either.
At a separate press conference Wednesday, Macklem said any slowing of the QE program would be gradual. Nor is the the Bank of Canada poised to raise borrowing costs. It’s pledged not to hike its policy rate until economic slack has been fully absorbed, something not expected to happen until 2023.
There are other concerns. With inflation hovering below 1%, Macklem said the central bank is more worried about deflationary pressures than any temporary overshoot of its 2% target.
“We are aiming for 2% but we are going to use the band and we are going to use the risk management framework to get there as quickly as possible,” he said.
The weakening U.S. dollar is another challenge, with any further broad-based depreciation a potential headwind.
“To the extent that is weighing on our forecast and dampening growth in Canada, everything else equal, we’d need more monetary stimulus to get back to our inflation target,” the central banker said.
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