MNI REVIEW: Canada Stimulus Worth 3% of GDP, BOC May Act Again

By Greg Quinn

     OTTAWA (MNI) - Canadian Prime Minister Justin Trudeau pledged a rescue

package worth 3% of GDP and BOC Governor Stephen Poloz said he may act again

before an April 15 meeting to gird the economy against the major shock of

coronavirus. 

     Trudeau offered up to CAD27 billion of direct support for workers and

companies losing incomes and another CAD55 billion of indirect aid from deferred

tax and loan payments. The actions are equal to 3% of GDP and the government

will do "whatever it takes" to boost the economy, Finance Minister Bill Morneau

said, echoing the G7's pledge this week.

     While Poloz wants to see the early impact of announced measures and a full

analysis due with the April 15 meeting, he told reporters at the second joint

press conference in a week with Morneau that he might not wait. The BOC's

earlier moves to inject money into the financial system are "scalable" and

Governing Council is continuously talking about what else is needed, Poloz said.

     "I was being fairly careful to not rule out actions at any time, with

nothing scripted about the Bank's posture," Poloz said after being asked about

the Fed's cut Sunday to around zero versus Canada's 0.75% rate. The BOC cut

50bps at a March 4 meeting and by the same degree at an unscheduled March 13

decision. 

     "I'm not going to itemize what could cause us to move earlier or not move

earlier at this stage," Poloz said. "It's important for us to take some time

here to watch those things unfold and see how the market functions."

     Canada earlier this month pledged to buy up to CAD 50 billion of insured

mortgage pools, tackling what the BOC has identified as a vulnerable part of the

economy after a decade of debt-fueled consumer spending. The BOC is also doing

things like bond switch operations and targeting mortgage bond purchases of up

to CAD 500 million a week. Government agencies are also stepping up corporate

lending and guarantees.

     These earlier moves aren't QE, Poloz said, just helping restore regular

market price discovery and trading. "I would certainly not rule out quantitative

easing" he said, calling it a "standard part of the central bank toolkit."

     The MNI economist survey shows the BOC will cut 50bps to 0.25% at or before

its April 15 meeting, joining the Fed around zero and leaving QE and negative

rates as the major tools left. Poloz earlier this month said negative rates

aren't a great tool. Canada avoided that move in the 2008 banking crisis.  

     --DEFICIT FINANCING

     Bond yields have plunged to record lows as investors seek safe assets,

suggesting the market is ready for more rate cuts and whatever deficit financing

the government seeks. Two-year Canadas yielded 0.46% Monday and 10-years 0.78%.

     The new spending positions Canada to break a record cash deficit of CAD56.4

billion set in the 2009 recession, given the prior estimate of a CAD28 billion

shortfall for the fiscal year starting April 1. Relative to GDP, both the new

deficit and the one in 2009 of 3.6% lag shortfalls in the early 1990s topping

5%.

     "Our government is prepared to do more," Trudeau said. "Our economy will

rebound after this," he said, declining to say whether he expects a recession. 

     Workers laid off can receive a 10% wage subsidy for three months, family

tax credits are being expanded and tax filing deadlines are being pushed back.

Trudeau spoke from his residence where he's in isolation after his wife tested

positive for COVID-19.

     The Conference Board of Canada released figures as Morneau spoke saying its

consumer confidence index fell a record 32 points in March. RBC, Bank of America

and CIBC say Canada is heading for a recession, while the Conference Board said

annual growth of 0.3% will keep the economy on the brink of recession.

     Trudeau also confirmed Canada like the U.S. is closing their shared border

to non-essential travel until further notice, while maintaining cargo shipments.

"These measures will last in place as long as we feel they need to last" he

said.

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

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