MNI POLICY: BOC Says Boosting QE Pace Is Unlikely Option

While the recent path of the pandemic adds layers to upside and downside risks, the Bank of Canada in a much more damaging second wave may tweak QE rather than pick up the pace again, Deputy Governor Paul Beaudry said Thursday.

The central bank has already slowed QE to at least CAD4 billion a week from CAD5 billion and kept its power by shifting purchases to longer-term assets, he told reporters after a speech. Asked what would happen in a downside case, he said: "We could kind of even go faster in this move between the short and the longer end," and "the aspect we could decide is to increase the quantity -- I don't think that's the direction we'd want to go at this point."

The central bank will do a full overhaul of the economic outlook for its next rate meeting in January and it's too soon to say if the risks remain balanced, Beaudry said, adding that for policy "we are really keeping our options open."

Officials are still discussing whether the "effective lower bound" of interest rates remains 0.25% as the BOC has said in its decisions earlier this year, including Wednesday when it made no change to rates and the pace of QE.

Governor Tiff Macklem suggested earlier this year the rate could be cut a little if the economy needed a boost while saying a negative rate could be disruptive. In the past the BOC has said the rate could go as low as -0.5%.

In his speech, Beaudry said that while the economy may be weighed down in the near term by the second wave of Covid, the vaccine developments could provide an upside risk by allowing people to return to work more quickly. "In that context, we may need to re-examine the amount of stimulus needed to achieve our inflation target. Earlier in my speech, I illustrated how we could withdraw stimulus from our QE program when the time comes."