MNI POLICY: BOC Governor Shifts to Say Negative Rates Possible

Bank of Canada Governor Tiff Macklem said Thursday that negative interest rates remain a possibility, a shift from the position he laid out when he took over the job a few months ago.

"We aren't actively discussing negative interest rates at this point, but it's in the toolkit, and never say never," Macklem said in response to an audience question after a speech about what options are left in today's economy.

"Canadians have already seen we have a wide range of tools in our toolkit," Macklem said, noting the 10 asset purchase programs launched in March and April when global markets froze up.

"Some of the other tools which we haven't deployed to this point -- funding for lending, our European colleagues are using, have been using for some time, negative interest rates, Japan and Australia are using yield curve control," the governor said.

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The BOE has also signaled that negative interest rates could be possible, while the Fed has continued to rule them out. While the BOC following the financial crisis a decade ago did a review showing rates could in theory go to around -0.5%, Macklem downplayed that option earlier this year, as did his predecessor Stephen Poloz.

Macklem earlier on Thursday also called the current 0.25% the "effective lower bound," a term he's used before to underline that a negative rate creates practical difficulties for the banking system. He also said that other existing programs can be scaled up if new problems emerge.

Macklem at his first speech as Governor in June said this about negative interest rates: "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."