MNI POLICY: BOC Stresses Second Wave Over Vaccine Progress

Bank of Canada Governor Tiff Macklem said Tuesday the economy will struggle through early 2021 because of the pandemic's second wave, before new vaccines can help things move back towards normal.

"The economic recovery from the pandemic is at a very difficult stage," Macklem said in the text of a speech to a Vancouver audience. "Near term, rising COVID-19 infections will dampen growth and could even deepen our economic hole. Uncertainty is elevated, and the recovery is going to be long and choppy."

"The recent positive news on vaccines provides some reassurance that more normal activities can resume sometime later next year. However, the path from here to there looks difficult," he said.

The speech reiterated the central bank's pledge to keep interest rates low until slack in the economy is absorbed, something it has said may take until into 2023, and didn't provide new details on its approach to asset purchases worth at least CAD4 billion a week. Macklem again mentioned the U.S. dollar's broad decline has pushed up Canada's dollar and put more strain on the country's exporters.

TRADE DEFICIT RISKS

Macklem didn't provide any detailed update on the central bank's economic projections that will be overhauled at the next meeting in January. Sources have told MNI the BOC will likely need to pull forward its assumption that a vaccine won't be widely available until the middle of 2022.

Most of the remarks looked at exports in a nation that is one of the most trade-dependent among major economies. There has been a long trend of weakness because of historic ties to slower-growing economies and lost competitiveness, Macklem said. The global rebound from the pandemic in an upside scenario could eliminate the nation's chronic trade deficits if those trends turn around and Canada overcomes obstacles in getting crude oil to market, he said. In a downside case, the deficit could widen by 60%.

Macklem is due to take audience questions and hold a press conference after the speech.