Canadian Monetary Policy in the Time of COVID-19
20 Pages Posted: 26 Apr 2022
Date Written: October 8, 2020
Abstract
The current pandemic and the accompanying economic lockdowns have led to the deepest economic downturn since the Great Depression. Fiscal and monetary authorities have acted in kind, with unprecedented stimulus and expansion of balance sheets. The Bank of Canada, for its part, dropped the overnight rate to 25 basis points – considered by the Bank to be its effective lower bound – and intervened heavily in various asset markets to ensure market liquidity and well-functioning financial markets. With these interventions come challenges and risks, both in terms of hitting the Bank’s 2 percent inflation target and navigating a balance sheet with assets outside its usual holdings of federal government debt. In this paper, we review the Bank’s market interventions, and discuss their implications for achieving the 2 percent target, alongside additional credit and political risks.
Keywords: Financial Services and Regulation; Banking, Credit and Payments; Central Banking; Financial Stability; Inflation and Inflation Control; Monetary Policy; Economic and Policy Retrospective; Money Supply
JEL Classification: E52; E44; E58
Suggested Citation: Suggested Citation