BoC Governor Stephen Poloz delivered his final speech yesterday, before stepping down next week. He noted that the “dominant concerns” for the coronavirus crisis response was “was with the downside risk and the possibility that deflation could emerge.”

“Deflation interacts horribly with existing debt, the two main ingredients of depressions in the past,” he added. “In effect, then, we were saying that the downside risks were sufficiently dire that there were no relevant trade-offs for monetary policy-makers to consider.”

He admitted that the actions will “clearly lead to higher indebtedness, for governments in particular”. Getting the economy back onto its growth track is “the surest means of servicing those debts over time”.

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However, with the situation “more like a disaster than a recession”, confidence is expected to be “buttressed by fiscal income supports” and a “reasonably swift return to growth”. But, “any structural damage, such as business failures and labour market scarring, will of course take longer to repair.”

Poloz’s full speech here.


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