Comments from Bank of Canada Governor Stephen Poloz yesterday were resoundingly optimistic about the direction of the Canadian economy in the coming years, despite global and domestic trends that remain tall barriers to success. In his statement, the Governor molded what is largely seen as a recession into what he described as a mild contraction, citing positive patterns in inflation and the likely attainment of Canada’s inflation goals of 2.00% within a reasonable time frame. Thus far, complementary monetary policy by the Bank of Canada has managed to stem large economic losses and drive moderate economic growth, helped along by statistics like headline CPI, which currently sits at a moderate 1.00% annual pace of increase. Canada is forecast to hit its inflation goal halfway through 2017, similar to anticipated results from other world economies, but headwinds such as low demand for commodities in China and terribly feeble oil prices may entangle the outlook.
In times when a clear horizon is nigh impossible to achieve, Central Banks must vigilantly watch and be prepared to react with creative policy solutions. The Bank of Canada has previously stated that willingness to alter monetary policy is the least of their problems, and has laid out several curious options as to how they may combat economic troubles. Strategies such as lowering interest rates into negative territory are resolutely supported by higher-ups including Governor Poloz, who was heard to say that mirroring similar policies in Europe will benefit Canada. A -0.50% interest rate in the country would effectively charge depositors for holding their money in banks, lowering the incentive for saving and inevitably leading to increased consumption. Fiscal stimulus is also a tool ready to be used, but officials from the Central Bank have recently comforted market participants with the promise that these measures will only be used during conditions of dire need.