Bank of Canada keeps some dry powder as Ottawa spends By


© . Bank of Canada Governor Tiff Macklem takes part in a news conference in Ottawa

By Julie Gordon and Fergal Smith

OTTAWA/TORONTO () – Bank of Canada Governor Tiff Macklem sees the benefit of sticking with increased government spending to support an economy that has been hammered by the COVID-19 crisis, even as the central bank keeps some of its own firepower in reserve.

Macklem told late Wednesday that there was “no question” the emergency supports the Canadian government had put in place were needed and warned against pulling back too soon.

“One of the things we’ve learned from past crises is that if you withdraw stimulus too early, the recovery stalls and it can end up costing you more than if you’d kept it going,” Macklem said in an interview.

He has previously said fiscal policy is more effective than monetary policy at targeting those hit hardest by the crisis.

On Wednesday, finance minister Chrystia Freeland signaled that while more money was coming as Canada grapples with a second wave of coronavirus infections, aid spending “cannot” be infinite.

Macklem said he supports the principle that the fiscal aid cannot last forever.

“If you get yourself in a situation where you have a structural deficit, you’re going to create a new problem, so that’s something to be avoided,” he said.   

On Wednesday, the Bank tweaked its bond-buying program toward longer-term purchases, a shift that better aligns the program with government borrowing, analysts say.

But the central bank stopped short of additional easing steps, such as setting targets for long-term yields or signaling a willingness to let inflation run above target.

“(Macklem) has in the back of his mind full awareness of a potential fiscal policy overshoot forthcoming that lessens pressure upon him to offer additional stimulus,” Derek Holt, head of capital markets economics at Scotiabank, said in a note.

“The BoC is not operating in a policy vacuum and has tended to strongly coordinate moves with the federal government.”

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.