Poloz, Stephen S.

Yale University

7/29/2021 Opening Statement before the House of Commons Standing Committee on Finance - Bank of Canadahttps://www.bankofcanada.ca/2020/04/opening-statement-160420/ 1/3Opening Statement before the House ofCommons Standing Committee on FinanceOpening statementStephen S. Poloz - Former Governor (2013 - 2020)House of Commons Standing Committee on FinanceOttawa, OntarioApril 16, 2020Good afternoon, Mr. Chairman and committee members. Senior Deputy GovernorWilkins and I welcome the opportunity to appear before you to discuss the Bank’spolicy actions in response to the coronavirus pandemic, as well as our MonetaryPolicy Report (MPR), which we published yesterday.The Canadian economy is experiencing a significant and rapid contraction. The shockis a global one, affecting all countries, but commodity-producing countries like Canadaare being hit twice. Beyond the impact of the necessary public health measures tocontain the virus, the economy is also being hurt by the plunge in world oil prices.In the very near term, policy-makers can do little more than cushion the blow. Indeed,for the Bank to achieve its primary mandate of keeping inflation close to target, theeconomy first needs to be stabilized. In recent weeks, Governing Council lowered ourpolicy interest rate three times to 0.25 percent, which we consider to be its effectivelower bound. These moves were based on analysis of the factors we could measureimmediately—mainly the likely fallout on the economy from the collapse in oil prices aswell as the immediate effects of measures to contain the coronavirus. This preliminaryanalysis indicated that cutting rates all the way to the effective lower bound was thebest contribution the Bank could make to stabilizing the economy and complementingthe government’s extensive efforts to respond to the pandemic.However, for the Bank’s monetary policy actions to reach companies and householdsand foster a robust recovery, it is crucial that financial markets function well. And so,the Bank has so far taken many steps aimed at improving market functioning. Let medescribe these programs and facilities and their intended purpose.The market for Government of Canada bonds is foundational—it forms the basis formany other financial markets. So we launched a program to purchase at least $5billion of these bonds per week to support the liquidity and efficiency of this market. Inyesterday’s announcement, we stressed that we can increase this program at anytime, should conditions warrant it. And we announced that we will increase ourparticipation in the federal government’s treasury bill auctions to 40 percent of eachnew issue.The Bank is also helping ensure proper functioning of provincial debt markets bybuying up to 40 percent of new provincial money market securities and up to$50 billion of provincial government bonds.We have taken a number of steps to ensure financial institutions have ample liquidityso Canadian businesses and households can continue to have access to credit tomeet their basic needs and bridge this difficult period.  7/29/2021 Opening Statement before the House of Commons Standing Committee on Finance - Bank of Canadahttps://www.bankofcanada.ca/2020/04/opening-statement-160420/ 2/3These steps include enhanced repo facilities—which allow banks and other primarydealers to borrow cash from us by using their assets as collateral—in order to helpthem better manage their liquidity risks. We have expanded the list of institutions thatcan access our lending as well as the types of collateral they can pledge, and thesefacilities can now provide funding for up to 24 months. We have started a contingentterm repo facility, which offers liquidity to a broader range of counterparties that areactive in the repo market. Further, we have established a program to buy CanadaMortgage Bonds—up to $500 million per week. This is to support the healthyfunctioning of an important market for mortgage lending to Canadians. Together, allthese facilities should improve liquidity and funding conditions for lenders, which willhelp companies and households have access to the credit they need. It will also helpthem benefit more from our monetary stimulus during the recovery period.To support Canadian businesses, we started a program to buy bankers’ acceptances,which are a key source of financing for many small and medium-sized companies. Wealso began the Commercial Paper Purchase Program, which provides financing for awide range of businesses and public authorities. And yesterday, we announced aprogram to buy $10 billion of high-quality corporate bonds in the secondary market.As we said in our policy announcement yesterday, the Bank stands ready to augmentthe scale of any of its programs should market conditions warrant it. With theseprograms in place, the combination of aggressive fiscal action by governments andmonetary stimulus by the Bank will create the best possible foundation for therecovery period.It is the normal practice for the Bank to provide a detailed economic forecast for theCanadian economy in our MPR and for us to discuss this forecast when we appearbefore this committee. However, the economic outlook is highly conditional on howlong the containment measures remain in place and how households and businessesadapt. Given this, the Bank decided that it would be false precision to offer a specificforecast in our MPR. Instead, we chose to offer two plausible illustrative scenarios forthe economy. One should be thought of as a “best case”—which remains feasibledepending on the length of the shutdown and other factors—while the other is a muchmore severe scenario. Many possible outcomes lie between these two. Regardless ofthe outcome, based on the Bank’s analysis, we concluded that substantial monetarystimulus needs to be in place to lay the foundation for the post-containment economicrecovery.I want to stress that all our actions so far have been entirely consistent with ourinflation-targeting framework as set out in the agreement with the federal government.Inflation targets provide an anchor for the economy—particularly inflation expectations—and a guide for policy actions. Keeping inflation close to our 2 percent target meanssetting monetary policy to stabilize the economy and returning economic growth andemployment back to full capacity.Before I conclude, let me just note that this is the last time that I am scheduled toappear before this committee as Governor of the Bank of Canada. Theseappearances are an important part of the Bank’s accountability to Canadians. I havealways appreciated these occasions to explain our work to you and, through you, tothe public. And I thank you for your work in this regard.With that, Senior Deputy Governor Wilkins and I would be happy to take yourquestions.Content Type(s): Press, Speeches and appearances, Opening statementsTopic(s): Coronavirus disease (COVID-19), Inflation and prices, Monetary policy,Monetary policy transmission, Recent economic and financial developments7/29/2021 Opening Statement before the House of Commons Standing Committee on Finance - Bank of Canadahttps://www.bankofcanada.ca/2020/04/opening-statement-160420/ 3/3

Opening Statement before the House of Commons Standing Committee on Finance

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