Central bank holds rate and will start buying up to $50 billion in provincial debt, and up to $10 billion of corporate bonds
The International Monetary Fund earlier this week observed that forecasting accurately during the coronavirus crisis is an extremely uncertain undertaking, but it still published an outlook that said the “Great Lockdown” will cause global GDP to contract by three per cent this year, the deepest since the Great Depression, followed by growth of 5.8 per cent in 2021.
The Bank of Canada faced the same near-impossible situation and decided not to bother. Instead, on April 15, it replaced its customary baseline projection with a “scenario analysis” of plausible outcomes that depend on how long it takes authorities to get COVID-19 outbreaks under control.
Bay Street economists will likely grumble about the central bank’s refusal to join their weekly scramble to update increasingly apocalyptic short-term forecasts, all of which are necessarily wobbly since they are premised on historical patterns that don’t include a once-in-a-lifetime event such as a global pandemic.
But the Bank of Canada’s focus is on the present, which contains all the information policy-makers need to realize that they have an epic fight on their hands. The central bank also unveiled a new set of emergency measures, including plans to create tens of billions of dollars in order to purchase provincial bonds and corporate debt. At the same time, it left the benchmark lending rate at 0.25 per cent, underlining the central bank’s reluctance to adopt negative interest rates.
“The Canadian economy is experiencing a significant and rapid contraction,” Governor Stephen Poloz said in a statement ahead of a conference call with reporters. “The shock is a global one, affecting all countries, but commodity-producing countries like Canada are being hit twice. In the very near term, policy-makers can do little more than cushion the blow.”
Canada’s central bank hasn’t closed its forecasting shop. On the contrary, the economic analysis division is probably working harder than ever, as staff incorporate new data sources to make better guesses on how the future might unfold.
For example, Poloz told reporters that China’s experience with re-opening its economy could hold information about how the future will unfold in Europe and North America. The Bank of Canada observed that road and subway traffic in China is back to pre-crisis levels during the week, but remains down on weekends, suggesting a hesitancy to return to life as normal.
Source: Kevin Carmichael | Financial Post
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