Governor Stephen Poloz speaking before the Empire Club of Canada in Toronto indicates if Canada encounters another financial crisis , Sub-zero interest rates may be an option to consider down the line along with other unconventional policies. Mr. Poloz stresses these measures should in no way be taken as a sign the bank is about to use any of them.
“We don’t need unconventional policies now, and we don’t expect to use them. However, it’s prudent to be prepared for every eventuality,” Governor Poloz said in a speech today to the Empire Club of Canada.
In a struggling economy, a standard practice for a central bank is to cut interest rates. On December 2nd, the Bank of Canada maintained its target for the overnight rate at 1/2 per cent. Moving its policy rate below zero would make saving less attractive and borrowing more attractive by boosting the amount of money being spent, encouraging an economic recovery.
Although Mr. Poloz makes it clear that moving the policy rate below zero is by no means an indication the bank will take this drastic measure, in a major financial crisis, the Bank of Canada is prepared to look at unconventional policies.
Watch the Video: The Evolution of Unconventional Monetary Policy - Stephen S. Poloz, the Governor of the Bank of Canada, speaks before the Empire Club of Canada.