MNI POLICY: Text of BOC Gov Macklem's House Panel Statement

By Greg Quinn

     OTTAWA (MNI) - Following are highlights of BOC Governor Tiff Macklem's

opening statement Tuesday to the House of Commons Finance Committee in Ottawa:

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

Canadian economy recover from the enormous impact of COVID-19. Today I will talk

about the Bank's four main functions and elaborate on how the Bank is responding

to the pandemic...

     We help the government manage its finances in a cost-effective way. But

this function has taken on added importance during the pandemic. The

government's financing needs have increased at an unprecedented pace this fiscal

year with the introduction of measures to reduce the pandemic's impact on the

Canadian economy. I note that even with this record issuance, Canada's net

debt-to-GDP ratio remains the lowest among G7 countries...

     Because interest rates on Government of Canada debt serve as the benchmark

for many other financial markets, it is imperative to keep government bond

markets working well. To do this, the Bank has implemented a number of

extraordinary measures, which brings me to our financial system function....

     Under the leadership of my predecessor, Governor Poloz, as well as Senior

Deputy Governor Wilkins, the Bank did an outstanding job restoring smooth

functioning to key markets, ensuring ample funding and market liquidity. The

Bank revived some emergency programs used during the global financial crisis

over a decade ago. And it brought into operation several new measures with

remarkable speed and precision.

     We are pleased to report that demand for liquidity is returning to normal

levels, and market functioning has improved considerably. The Bank has therefore

scaled back the frequency of some operations because financial market

participants are not using them. We stand ready to ramp up these programs again

if we see that they are needed.

     Monetary policy

Finally, let me say a few words about the conduct of monetary policy. Our policy

framework is set out in the inflation-targeting agreement established with the

government and renewed every five years. The agreement sends an important signal

that the democratically elected government and the Bank are agreed on our policy

goal, while giving the Bank the operational independence to pursue that goal.

     This independence is crucial, both in normal times and in crisis times.

Through this pandemic, the Bank of Canada, the government, and financial Crown

corporations and agencies have all been working cooperatively to stabilize the

financial system, keep credit flowing and support the economy. The Bank's policy

actions are designed to complement the government's fiscal efforts. At the same

time, we are cognizant of each others' mandates, and the government has made it

clear that it fully respects our independence. As Governor, I will protect the

Bank's ability to act independently, consistent with our mandate, because that

independence is critical to the confidence that Canadians place in us, the

credibility of our inflation target, and our capacity to achieve it...

     Our inflation target takes on added importance during times of crisis. As

the Bank moves into uncharted waters using tools it has not deployed before, the

inflation target remains our beacon. Our monetary policy actions are anchored in

the goal of bringing inflation back to target by helping the economy return to

its potential capacity with full employment...

     With containment measures starting to be lifted in some parts of the

country, we saw a resumption of job growth at a national level in May. We expect

this to accelerate as the economy continues to reopen, but we have a long way to

go, and not all the jobs that were lost are coming back. Important fiscal

efforts are keeping as many Canadians as possible attached to their jobs and

helping households and companies make it through the crisis. These efforts are

supporting Canadians now and will position the economy for recovery.

     In our latest interest rate announcement, we said that we expect economic

growth to resume in the third quarter. And with market function improved and

containment restrictions easing, the Bank's focus will shift to supporting the

resumption of growth in output and employment. The July Monetary Policy Report

will provide our updated assessment of the outlook for output and inflation.

Given the unknown course of the pandemic, I expect this will be more of a

scenario than a forecast and will also include a discussion of the key risks.

     While our monetary policy will continue to be grounded in our

inflation-targeting framework, we acknowledge that the consumer price index

isn't currently giving an accurate picture of inflation for many Canadians.

Buying patterns and prices have changed drastically. We know many people are

buying less gasoline and fewer travel services while continuing to purchase food

from stores. This makes their experience quite different from the data being

reported. 

     The Bank has acted decisively by bringing the policy interest rate to its

effective lower bound of 0.25 percent. We have also begun large-scale asset

purchases. As such, we are using our balance sheet to keep core funding markets

working well and to deliver monetary stimulus to support the economic recovery.

We have committed to continue purchases of Government of Canada bonds until the

economic recovery is well underway. Any further policy actions would be

calibrated to provide the necessary degree of monetary policy accommodation

required to achieve the inflation target...

     We will be transparent about the results of our asset-purchase programs... 

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

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