Policy makers still have firepower to spur growth even with borrowing costs near zero, Bank of Canada Governor Stephen Poloz said, citing unconventional policies and fiscal stimulus.
While the central bank doesn’t expect another crisis that will force it to resort to such policies, a number of tools are still available, including charging banks for deposits, forward guidance and asset purchases, Poloz said. Fiscal stimulus could be even more effective than monetary policy in extreme circumstances, he said.
“I certainly hope we won’t ever have to use these tools,” Poloz said Tuesday during a speech in Toronto. “However, in an uncertain world, a central bank has to be prepared for all eventualities.”
While Poloz sought to highlight the hypothetical nature of his comments, the speech comes amid growing concern for Canada’s economy as fresh signs of weakness in China and growing concerns about a global oil glut damp the outlook for commodity-producing nations.
Swaps trading suggests investors are pricing in a 25 percent chance of another rate cut by May, following two reductions this year that brought the benchmark rate to 0.5 percent.
“In short, should the need arise, we’ll be ready,” he said.
Canada was the sole Group of Seven nation that didn’t use the widespread asset purchases known as quantitative easing through the 2008 global financial crisis, in an economy anchored by the world’s safest banks and a stable housing market.
Still, over the past two years the central bank has focused on updating rules first published in 2009 for any use of extraordinary stimulus, incorporating lessons from abroad.