BoC official explains high bar for future quantitative easing

A senior Bank of Canada official has stated that the measures taken during the pandemic helped boost the economy, but the bar for using quantitative easing (QE) again will be very high, as reported by BNN Bloomberg.   

The comments were made Thursday in a speech in Ottawa to the Canadian Association for Business Economics as the central bank works to rebuild trust with the public and be transparent in its operations.   

With its key policy interest rate already at its lowest in 2020, Deputy Governor Sharon Kozicki explained that the central bank started buying more government bonds than usual to keep interest rates low—a practice known as quantitative easing.   

Combined with extraordinary forward guidance from the central bank, this move helped maintain low interest rates, boosting the economy.   

It was the first time the central bank had used quantitative easing and only the second time it used forward guidance to support the economy, the first being during the financial crisis.   

Kozicki highlighted the unprecedented economic shock that prompted quantitative easing, emphasizing the move's unusual nature. “The bar for us to use QE again is very high,” she said.   

Kozicki also mentioned that the bank is conducting an in-depth review of its pandemic decisions to learn from its actions. “While this review is a significant step, it is not the final word,” she said.  

“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 cut its key interest rate last week by a quarter of a percentage point to 4.75 percent. The bank stated that if inflation continues to ease, further cuts are possible, but decisions will be made one step at a time.   

The summary of the central bank's deliberations for its decision to cut its key policy rate will be released on June 19.