Speaking in Toronto last week, Bank of Canada governor Stephen Poloz provided details on the updated framework that will be utilized for unconventional measures, which remain unchanged from the previous version apart from the effective lower bound for interest in a worst-case scenario. The amount has now been set at -0.50 per cent, down from the previous 0.25 per cent.
Poloz also outlined the Bank of Canada’s projections, which expect steady growth of approximately 2.0 per cent that would end up closing the output gap on or around mid-2017. This estimated growth rate would remove the need for monetary easing.
Observers remained skeptical of this level of economic health for the next two years, warning that added slowdown in foreign demand or commodity prices will stifle further growth. However, Poloz provided reassurance to skeptics that the Bank of Canada has the necessary tools to help restore growth.
While the Bank of Canada has the plans in place, though, Poloz said that they are not seeing any immediate need to deploy these tools. He reiterated that the unconventional policy will only be used as necessary due to significant risks like aggravating financial imbalance and generating weakness.