Bank of Canada’s Deputy Governor Emphasizes Stringent Criteria for Implementing QE Again

A senior Bank of Canada official mentioned that the unconventional steps taken during the pandemic proved beneficial in boosting the economy. However, the official emphasized that the threshold for resorting to quantitative easing again would be quite high.

These remarks were made on June 13 in a speech delivered in Ottawa to the Canadian Association for Business Economics. The central bank is striving to regain public trust and ensure transparency in its operations.

Due to the policy interest rate hitting its lowest point in 2020, deputy governor Sharon Kozicki explained that the central bank opted to increase its purchases of government bonds to maintain low interest rates, a strategy known as quantitative easing.

Together with exceptional forward guidance from the central bank, this move played a key role in keeping interest rates low and stimulating economic growth.

This marked the first instance of the central bank utilizing quantitative easing and only the second time using forward guidance to support the economy—the first occurrence being during the financial crisis.

However, Ms. Kozicki highlighted the unprecedented economic shock that prompted the decision to implement quantitative easing, underscoring the unique nature of the measure.

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Ms. Kozicki stated, “The bar for us to use QE again is very high.”

She mentioned that the bank is conducting an extensive evaluation of the actions taken during the pandemic to derive valuable insights from its decisions.

Ms. Kozicki added, “While this review is a significant step, it is not the final word. Questions will continue to be asked that may shape if and how we use our exceptional tools in the future. These questions are particularly valuable in a world where the next crisis may look different from those in the past.”

The Bank of Canada recently reduced its key interest rate by a quarter of a percentage point to 4.75 percent. The bank indicated that if inflation continues to decrease, further rate cuts could be expected, but decisions are being made on a case-by-case basis.

The summary of the central bank’s discussions leading to its key policy rate cut is scheduled to be disclosed on June 19.