April 15, 2020 / 3:21 PM / in 3 months

HIGHLIGHTS-Bank of Canada's Poloz and Wilkins speak after rate decision

April 15 (Reuters) - Below are some key quotes from a news conference by Bank of Canada Governor Stephen Poloz and Senior Deputy Governor Carolyn Wilkins on Wednesday after the central bank held interest rates steady.

Link to the opening statement: here

POLOZ SAYS BANK IS STICKING TO ITS PLAN TO CHOOSE A SUCCESSOR

“I got to go back to the process. The process began last December with our board leading this process to chose. This is a very long plan. It’s a seven-year mandate. The seven-year mandate ends on June 2nd.”

POLOZ SAYS PROCESS TO FIND A NEW GOVERNOR IS AROUND 90% COMPLETE

“I think we can go ahead and continue this process ... I guess it must be something like 90% complete.”

POLOZ ON DIFFICULTY FORECASTING INFLATION; SHOCK HITTING SUPPLY AND DEMAND SIDES OF ECONOMY AT SAME TIME:

“This is of course the toughest part of all in this environment to make a forecast around this, precisely because the shock is affecting the supply side and the demand side of the economy at the same time. Now, when this is over, when we begin to put the economy back into gear, the supply side of the economy is going to react right away, but not all of it, not all at the same time. Similarly, though, on the demand side we won’t get the reaction all at once either.”

POLOZ ON WHETHER DEMAND SIDE MAY BE SLOWER COMING BACK THAN SUPPLY SIDE:

“We were just on the G20 meeting this morning and China’s reporting that most people are back to work so things are running again. Supply side is, at least industrial production, is right up there. But people are going to work every day and coming home every day but then not going out very much on the weekend or evenings. And so you can see there there’s evidence on that early sign that the demand side might be a little slower to pick up than the supply side. But that may just be for certain sectors such as entertainment or restaurants or personal travel. So this is almost impossible for us to glean out. So what we’ve considered is those various possibilities.

POLOZ ON LARGER CONCERN THAT DEMAND COULD FALL SHORT IN RECOVERY PHASE AND HOLD INFLATION LOWER FOR A LONGER PERIOD:

“Our larger concern would be in the downside for inflation, that the demand is the thing that could fall short of supply during that recovery phase and hold inflation lower below target for a longer period. And so that’s of course one of the reasons why we’re orchestrating all the stimulus that we have on the table today and making sure that we’re making these other market moves so that it does find its way to the ultimate borrower.”

POLOZ SAYS NO GOVERNMENTS ASKED BANK TO SET UP A PROVINCIAL DEBT BACKSTOP:

“The short answer to that question is no, a very clear no. I can certainly say that in my experience that the government of Canada has been unwavering in its commitment to the principle of central bank independence. So no one has asked us to do anything on the provincial front. What we are looking at though … is a provincial bond market that is still showing significant signs of strain.”

WILKINS ON PLANNED ANALYSIS OF HOUSEHOLD DEBT:

“We tend to look far past the aggregate measures of household debt to disposable income to look at who’s actually holding that debt and how indebted are they relative to their income? What are their debt service payments like? Do they have any assets that support that balance sheet or not? So we will continue to do that. I would just note that we have a financial system review which we will publish in the coming months – it’s in May – and so you will see our full analysis of household debt there.”

POLOZ REASONABLY OPTIMISTIC THAT THE BANK’S BEST CASE SCENARIO IS STILL ACHIEVABLE

“I may be at heart an optimistic person so I want to make sure that you understand that this is not necessarily as objective as I should be, but the fact is that we are doing a good job. I’m impressed with how people are observing the guidelines and the rules around social distancing et cetera. Just take a trip to the grocery store once a week at most and there you are you can see everybody practicing it very carefully. So I’m reasonably optimistic that the positive scenario that we have here, what I call the best-case scenario, is still achievable. The negative one is there because of course we have to at least imagine or think through what things would look like if we don’t succeed with social distancing and we don’t succeed in getting the economy at least sequentially coming back online relatively soon. … I think the best case scenario that we’ve laid out here is achievable.”

POLOZ ON BENEFITS TO CONSUMERS OF LOW INTEREST RATES

“What we’re making sure is that what they have to look forward to is the lowest interest rates that we’ve seen in a very, very long time, so if their plans involve borrowing in order to achieve those plans – whether it’s to buy a new vehicle, or make a renovation to their home, or buy a house – that those interest rates will be very low and we therefore have a lot of pieces in place for that recovery to be robust. SO I think they should be positive about the outlook.”

WILKINS ON THE STATE OF THE CREDIT MARKET

“Three weeks ago there was a lot of volatility in equity markets, at the same time we saw a lot of positioning for quarter end and a lot of portfolio shifts. For that reason there was a lot of tension. At the same time the programs we put in place...served us well because they really helped us unblock some of those markets, and we’ve seen a narrowing of spreads as well as more smooth activity. ...”

WILKINS ON OUTLOOK

“I wouldn’t pretend the conditions - particularly the term markets past one year - are functioning well, better than they were but if we think about our objective to have well functioning markets so that we set the stage for a good recovery and we allow firms and people to have access to credit, then the programs we introduce today will contribute to that.”

WILKINS ON CREDIT EASING

“The tool we have not discussed is funding for credit, which would be providing funding for a financial institution who tied that funding to a loan to say a small or medium sized enterprise. We haven’t done that because credit markets are largely open and at the same time there’s also some new government programs that are aimed at doing exactly that. ... With respect to credit easing, one of the things you observe in this kind of situation is that even though government yields might be falling, the yields on corporate debt aren’t falling as much. What credit easing can do is help the transmission mechanism work better by working not only on the functioning of markets but on the price that corporations need to pay.”

POLOZ ON BEST CASE SCENARIO ON ENDING RESTRICTIONS

“The two scenarios that we put out give you a sense of the comparison. The first one which I described in my remarks as you know where we are today is roughly what we could achieve as a best case scenario, and that would be the beginning of the lifting of containment measures at the end of May or something like this, late May or early June and then you get the economy gradually picking up traction.”

POLOZ SAYS NOT CONCERNED THAT LACK OF FORECASTS WOULD SEND DISCOURAGING MESSAGE

“No, I didn’t encounter that in our discussions. I mean we did deliberate it because of course it has been the practice for us for a very long time.”

POLOZ SAYS BANK DOES NOT SEE ITSELF AS BEING IN A FORECASTING CONTEST

“The last thing we want to do is offer some sort of false precision. I said in earlier press conferences that the bank doesn’t think of itself as being in some sort of forecasting contest.”

POLOZ SAYS THERE IS VERY RICH ANALYSIS OF DATA

“I can ensure you that just as much work as ever happened for the scenarios that are lying before you today. There is a very rich analysis of new data, short-term data, high frequency data that helps the staff kind of frame up the discussion.”

POLOZ SAYS THERE IS VERY LITTLE PURPOSE RIGHT NOW IN OPERATIONS AIMED AT LOWERING LONGER-TERM INTEREST RATES

“With 10-year yields sitting at 0.75% and the economy at the moment basically turned off, there is very little purpose in conducting operations aimed at trying to lower longer-term interest rates, so we have not moved into that space at this stage.”

POLOZ SAYS DELIBERATIONS AROUND YIELD CURVE CONTROL CAN WAIT FOR ANOTHER DAY

“Later on when we are in the recovery phase of this story, at that time we would consider whether to deploy QE (quantitative easing) with this specific objective around this specific interest rate or an area of the yield curve. So those deliberations can wait for another day.”

POLOZ ON RECOVERY

“I think the recovery will have a lot of pent up characteristics to it. Of course this depends when it begins, but what matters to this is that the fiscal actions that have been taken put a floor on business and consumer confidence, effectively stopping the clock. As opposed to seeing a cumulative negative dynamic, we just try to stop the clock and then re-start the economy later.”

“The recovery, certainly in its initial phases, is not going to feel like a typical recovery from a recession because people won’t need to be talked into it, they’re already talked into it.”

“We have other tools... We aren’t discussing (our unconventional toolkit) actively today.” (Reporting by Moira Warburton, Fergal Smith and Jeff Lewis Compiled by Denny Thomas)

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