MNI POLICY: New BOC Gov May Not Give July Forecast, Backs QE

By Greg Quinn

     OTTAWA (MNI) - Bank of Canada Governor Tiff Macklem used his first public

appearance since taking office to affirm he will press ahead with asset

purchases and near-zero interest rates in an economy facing permanent job losses

from Covid-19, and signaled he won't follow the Fed next month by restoring

economic forecasts. 

     "The Bank of Canada is committed to doing everything we can to help the

Canadian economy recover from the enormous impact of COVID-19," Macklem told the

House of Commons Finance Committee Tuesday. "We have a long way to go, and not

all the jobs that were lost are coming back."

     Macklem's testimony didn't reference further moves being used or considered

in the U.S. and Australia such as yield curve control or more explicit forward

guidance. Some asset purchase programs have been scaled back as market

conditions improve, and the BOC will keep buying federal government bonds "until

the economic recovery is well underway," he said. 

     Macklem started a seven-year term on June 3, inheriting a 0.25% policy rate

and a balance sheet heading past 20% of GDP. Macklem reiterated the current rate

is the lower bound. 

     --NO RATE HIKE

     Even with signs the economy will return to growth in the third quarter,

Macklem suggested the BOC's July Monetary Policy Report won't restore economic

forecasts that were dropped in April. "This will be more of a scenario than a

forecast and will also include a discussion of the key risks," Macklem said. The

last BOC rate decision on June 3, which Macklem endorsed, said "the next full

update of the Bank's outlook for the economy and inflation, including risks to

the projection, will be published in the MPR."

     Macklem told lawmakers there are no signs inflation will surge and "we have

no intention of raising interest rates in the current circumstance," and "we are

more concerned about the risk of deflation."

     The governor also gave another signal of BOC support for deficit spending

to help the economy through the pandemic, saying "even with this record

issuance, Canada's net debt-to-GDP ratio remains the lowest among G7 countries."

He also said he was committed to protecting the BOC's independence in a time of

closer coordination with fiscal policy.

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

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