OTTAWA, (Reuters) – Canada’s economic recovery from COVID-19 will be bumpy, and the pandemic is likely to inflict some lasting damage to supply and demand, Tiff Macklem said on Monday in his first speech as governor of the Bank of Canada.
He also reiterated that the bank’s key policy rate of 0.25% is at its effective lower bound, adding the central bank feels moving rates into negative territory could distort the behavior of financial institutions.
“The pandemic is likely to inflict some lasting damage to demand and supply. The recovery will likely be prolonged and bumpy, with the potential for setbacks along the way,” Macklem told a business audience.
The Bank of Canada expects that as businesses reopen from coronavirus closures, supply will likely be restored more quickly than demand, which could lead to a large gap between the two and put “a lot of downward pressure on inflation,” he said.
“Our main concern is to avoid a persistent drop in inflation by helping Canadians get back to work,” Macklem said, adding that the Bank’s 2% inflation target remains its beacon.
(Reporting by Julie Gordon and Kelsey Johnson)
((Reuters Ottawa bureau; 1-613-235-6745; kelsey.johnson@tr.com))
