OTTAWA (Reuters) - Once the coronavirus outbreak is over it could take the Canadian economy a couple of years to make up the lost ground caused by business and industry shutdowns, Bank of Canada Governor Stephen Poloz said on Thursday.
Poloz said the economy could lose between 4% and 6% of gross domestic product in 2020.
“I’m quite confident we will make up that lost ground but don’t hold me to a timeline. It’s going to take something that we measure in, say, a couple of years,” he told the House of Common finance committee.
The central bank slashed its overnight interest rate three times in March by a total of 150 basis points to just 0.25%, equaling a record low, as the effect of coronavirus-related shutdowns and cratering crude prices started to bite.
The bank held the rate steady on Wednesday and expanded its quantitative easing program. It also outlined an optimistic scenario where some of the restrictions could start to be relaxed by June.
Even had the coronavirus outbreak not occurred, the Bank of Canada would still have slashed interest rates to help compensate for the collapsing price of oil, Poloz said.
“Just on the basis of the drop in commodity prices alone, I would say we would have cut interest rates by at least 100 basis points,” he said when asked about the damage done by low oil prices, noting the bank also slashed rates in 2015 when faced with a similar shock.
“Possibly we would have ended up doing all 150 basis points if that were the only shock that we were facing.”
Poloz said aggressive fiscal action by governments and central bank monetary stimulus would create the best possible foundation for recovery once the outbreak is contained.
Poloz repeated the bank stood ready to augment the scale of any of its programs should market conditions warrant it.
Reporting by Kelsey Johnson and David Ljunggren; Editing by Sandra Maler, Peter Cooney and Tom Brown