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But Macklem and his deputies have opted to give themselves some wiggle room, probably because other central banks, including the Reserve Bank of Australia, have recently tested the boundaries of what they thought were their interest-rate floors without causing obvious harm, at least under current conditions.
“Should things take a more persistent turn for the worse, we have a range of options at our disposal to provide additional monetary stimulus,” Paul Beaudry, a deputy governor, said in a speech on Dec. 10. Those options include creating more money to purchase bonds, or targeting specific types of debt for purchase in hopes of lowering particular borrowing rates. “It could also include reassessing the effective lower bound, which would allow for the possibility of a lower — but still positive — policy rate,” he said.
To be sure, the Bank of Canada isn’t predicting economic conditions will get worse. It opted to leave interest rates and its bond-buying programs unchanged when it concluded its latest round of policy deliberations on Dec. 9.
Macklem, Beaudry and their colleagues acknowledged that the news about vaccines was a positive, while the second wave might be taking a greater toll on the economy in the short-term than policy-makers were expecting. Citigroup Global Markets Inc.’s Veronica Clark called the new policy statement “decidedly neutral.”
There’s nothing neutral, however, about the Bank of Canada’s feelings about negative interest rates.
