Bank of Canada urges rapid action on stimulus

Thu Mar 5, 2009 12:14pm EST
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By Louise Egan

OTTAWA (Reuters) - The Bank of Canada stressed on Thursday the urgency of fiscal action to stimulate spending and ease credit as a string of bad economic news batters consumer and business confidence.

Pierre Duguay, deputy governor at the central bank, clung to the bank's prediction of a sharp recovery leading to 3.8 percent growth in 2010 -- a forecast many private sector economists see as too rosy.

In testimony to a parliamentary finance committee, Duguay said he saw little risk that stimulus plans posed a threat to inflation or would lead to perpetual budget deficits in the long term.

More bad economic data is due in coming months, he said, making it all the more crucial that the Conservative government's C$40 billion economic recovery plan is rolled out quickly.

"I agree there is a sense of urgency. Very clearly we will be hit by a string of bad news in the coming months," Duguay said.

"What is absolutely critical is to maintain business and public confidence and, clearly, access to credit is essential in that situation," he added.

The Bank of Canada has injected liquidity into money markets but Ottawa's budget plan -- which contains the stimulus measures -- also contains measures to improve lending.

The budget legislation should become law shortly, after being passed by the House of Commons late Wednesday, Finance Minister Jim Flaherty said on Thursday.   Continued...

<p>The Bank of Canada building is pictured in Ottawa March 3, 2009. REUTERS/Chris Wattie</p>