In its most recent monetary policy report, the Bank of Canada presented possible means to strengthen the currently feeble Canadian economy. The central bank did not offer any solid dedications, but said it could choose to pursue more “unconventional” avenues, including quantitative easing and credit easing.
Bank of Canada governor Mark Carney told reporters in Ottawa on Thursday that “If there were a need to do something else, which is a big if … we would look to communicate that at our regularly scheduled fixed action date or fixed announcement dates because that’s when we make monetary policy decisions or monetary policy announcements.”
Quantitative easing would involve the Bank of Canada buying up assets, such as government bond and private assets. This would increase the price of on those assets, and reduce the subsequent yields from them.
A credit easing strategy could potentially see the bank buying up private-sector debt in credit markets that are temporarily impaired.
The Bank of Canada has been quoted as saying “The objective of credit easing is to reduce risk premiums, and improve liquidity and trading activity in these markets. This would, in turn, stimulate credit flows and aggregate demand.”
On Tuesday April 21st, the Bank of Canada reduced the target for the overnight rate to 0.25%, in what the central bank calls its lowest effective rate.
The bank also offered its amended, more dismal projection for the economic recovery of Canada.
The recession that is currently suffocating the country is anticipated to last longer than primarily projected, and the economy is expected to contract 3% for 2009. The central bank now forecasts the recovery to be delayed until the fourth quarter of this year. When signs of recovery start to show, it is expected that full revival will be quite gradual.
At that time, the economy is expected to grow by 2.5% in 2010 and a further 4.7% in the year 2011, however is not expected to reach full production capability until the third quarter of 2011.