Canada's economy will take a while to bounce back from the effects of COVID-19. As per Tiff Macklem, The Central Bank of Canada has carried on with its purchases of government bonds to ensure interest rates are maintained at historical lows.
In his first public speech since being named new governor, Macklem indicated Canada's economy should recommence growth in Q3, as containment regulations are gradually lifted. He did warn, though, that the economy's recovery will likely be "prolonged and bumpy". He added that the central bank will be "laser focused" on proping-up the recovery with stimulus.
“It will be a very long period before we start discussions about removing stimulus,” Macklem responsed to a question after his speech, which he gave via video. "It's not a discussion we're engaging in right now."
The economy will get an immediate boost as containment measures are lifted, people are called back to work, and households resume some of their normal activities,” Macklem explained. “But it will be important not to assume that these growth rates will continue beyond the reopening phase.”
The central bank will continue to buy goverment bonds until the rebound is "well underway", said Macklem. He also explained that policy markers fear that demand will be slow in recovering, which could result in downward pressure on inflation with the absence of stimulus.
Lawrence Schembri, Deputy Governor agrees with Macklem. He believes the secondary phase of recovery will be long and arduous due the persisting uncertainties regarding the virus. The central bank predict the economy will rebound quickly during the first phase once governments permit regular activities to resume.
Macklem stated the bank will keep purchasing at least $5 billion of Canadian government bonds a week to help decrease long-term borrowing costs for households and businesses alike. He also hinted that rates will remain low for a long period.
The bank has persisted with its concern regarding the potential for lower inflation. While businesses are reopening, millions of Canadians are still out of work and spending has dropped dramatically. "Our main concern is to avoid a persistent drop in inflation by helping Canadians get back to work,” Macklem said.