May 14, 2020 / 2:26 PM / 14 days ago

UPDATE 2-Bank of Canada says its coronavirus measures appear to be working, 'robust' recovery possible

(Adds details from Bank of Canada press conference)

By Kelsey Johnson and David Ljunggren

OTTAWA, May 14 (Reuters) - The Bank of Canada said on Thursday that the measures it has taken to help stabilize financial markets during the coronavirus pandemic appear to be working and predicted the economic recovery could be robust.

The central bank did however express concern over vulnerabilities in the energy sector, which is suffering from waning demand and low prices.

The bank cut its key overnight interest rate three times in March to 0.25% and launched its first ever large-scale bond-buying program. The bank reiterated it could adjust the scale of the programs as needed.

The coronavirus remains a massive economic and financial challenge, Governor Stephen Poloz told reporters, but said he remained confident a strong financial system will “help Canada emerge from this episode in relatively good shape.”

In an annual review of Canada’s financial systems, the bank said its measures “are showing signs of succeeding.” It added, “access to liquidity has greatly improved in key financial markets that had been showing signs of financial stress.”

The risk of credit downgrades has intensified refinancing risks, particularly for oil and gas firms hit by low demand and slumping prices, it noted.

“The energy sector has the most refinancing needs over the next six months - C$6 billion ($4.3 billion) - and faces the most potential downgrades. This sector’s ability to secure refinancing will be particularly tested with low oil prices,” it said.

Canada is a major exporter of oil.

Government credit programs, the bank said, should help mitigate some of the sector’s challenges.

A range of emergency fiscal measures announced by Ottawa have also helped tackle the pandemic’s immediate impacts, the bank said. Those programs are equal to about 12% of Canada’s GDP.

“Putting a floor under the economy should mean that we have all the ingredients for a very robust return to economic growth in the second half of this year,” Poloz said.

“I’m not arguing we’ll get all the way back to where we were right away. That will take some time... but I think a large share of what we’re seeing should go away relatively quickly.”

The central bank said its programs helped improve liquidity and functioning across a wide range of markets, where “signs of panic” were evident when the crisis began.

“Without the aggressive policy responses, banks would be fairing much worse, with important negative effects on the availability of credit to households and businesses,” it said. ($1=1.4125 Canadian dollars) (Reporting by Kelsey Johnson and David Ljunggren; Editing by Will Dunham and Chris Reese)

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below