MNI POLICY: BOC's Macklem Affirms QE, Rejects Negative Rates

--New Governor Sticks To Script In First Speech

By Greg Quinn

     OTTAWA (MNI) - The Bank of Canada will continue to use asset purchase

programs over negative rates if needed in future, continuing with policies like

the purchase of at least CAD5 billion a week in federal bonds until the recovery

is well underway, Governor Tiff Macklem said in his first public speech as

governor, sticking largely to his predecessor's toolkit.

     The economy faces an inconsistent recovery from Covid-19, though growth

will return in Q3, and the BOC's big job is avoiding a slide in prices, Macklem

said Monday, noting some industries "won't reopen until we have a vaccine or at

least very effective anti-viral medications."

     Macklem said the next policy meeting on July 15 will restore only part of

the quarterly economic forecasts that were dropped in April, with the Monetary

Policy Report including "a central planning scenario for output and inflation,

with a discussion of the main risks around that scenario". 

     The BOC's focus will shift from stabilizing markets to supporting the

economy and meeting the 2% inflation target, he said, seeking to set aside any

short-term price swings linked to shifts in spending patterns amid the health

restrictions.

     While government income supports have helped make up for lost labor income,

consumer spending will remain "cautious" until people go back to work and have

more confidence, Macklem noted.

     Other speech highlights:

     --"Some central banks have taken their policy rates below zero. We feel

that bringing that rate into negative territory could lead to distortions in the

behavior of financial institutions."

     --"QE can also send a signal that our policy interest rate is likely to

remain low for a long period. By giving more certainty about the path of

short-term interest rates, this can help lower longer-term borrowing costs for

households and businesses."

     --"The economy will get an immediate boost as containment measures are

lifted... But it will be important not to assume that these growth rates will

continue beyond the reopening phase."

     --"We expect the quick rebound of the reopening phase of the recovery will

give way to a more gradual recuperation phase, with weak demand."

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

[TOPICS: M$C$$$]