OTTAWA (Reuters) - A quick response and targeted containment for future waves of COVID-19 will be needed to prevent “a very large setback” caused by another round of broad-based shutdowns, Tiff Macklem said on Monday, in his first speech as Bank of Canada governor.
The Canadian economy was hammered as officials shut down all nonessential businesses across the country to contain the spread of the coronavirus. Businesses have begun to reopen, but Macklem warned the recovery will be long and slow.
“There are going to be outbreaks as the economy reopens, we’re seeing this around the world,” Macklem said, responding to an audience question about a second wave. “The key is going to be responding quickly and trying to contain those.”
Macklem said Canada will need good contact tracing, testing, and the ability to implement localized shutdowns.
“If we can’t do that ... we’re going to have to get back to broad-based containment and that will be a very large setback.” He later noted the Bank is not including a second economy-wide shutdown in its scenarios.
Macklem earlier said the pandemic is likely to inflict some lasting damage to supply and demand, with supply likely to be restored more quickly than demand, which could put “a lot of downward pressure on inflation.”
“Our main concern is to avoid a persistent drop in inflation by helping Canadians get back to work,” Macklem said, adding that the Bank’s 2% inflation target remains its beacon.
Macklem also reiterated that the bank’s policy interest rate of 0.25% is at its effective lower bound, adding the central bank feels moving rates into negative territory could distort the behavior of financial institutions.
With financial markets functioning better, Macklem said the bank’s bond-buying program is providing stimulus to the economy by keeping a lid on long-term rates.
The Canadian dollar tracked stocks higher, rising 0.5% on the day to 1.3540 to the U.S. dollar, or 73.86 U.S. cents.
Money markets do not expect further rate moves this year.
Reporting by Julie Gordon and Kelsey Johnson in Ottawa; Additional reporting by David Ljunggren in Ottawa and Fergal Smith in Toronto; Editing by Grant McCool and Matthew Lewis