Supporting growth and greater opportunity

Governor Tiff Macklem outlines how the COVID-19 recession has had an uneven impact on Canadians and discusses the Bank’s decision yesterday to leave the policy rate unchanged.

Watch Governor Macklem speak at a virtual event hosted by the Canadian Chamber of Commerce. Read the full speech.

Policy rate unchanged

We decided to leave the policy interest rate at 0.25 percent.

This recession has been severe and uneven

Canada’s economy saw the sharpest drop on record this past spring. While this severe recession was felt across the country, some businesses and people suffered more than others.

  • Workers in many service industries—including restaurants, retail stores, hair salons and travel-related businesses—who aren’t in a position to work remotely were hit hardest.
  • Jobs in these sectors are more likely to be held by women, youth and people in lower-income households.
  • The closure of schools and daycares has affected working parents—particularly women, who tend to take on greater responsibility for child care.
  • Young people and women are also more likely to have been laid off permanently. The longer they are out of the job market, the tougher it may be for them to get back in.

Uneven outcomes for some can lead to poorer outcomes for all. Thus, even if monetary policy cannot target specific sectors, it is important for us to understand the uneven impacts of this recession and to make policy decisions that support lasting, broad-based growth.”

Getting people back to work

The best way to improve people’s economic well-being over time is to get them working again and keep them working. Broad-based strength in the job market can help reduce income inequality.

Government income replacement and wage-support programs have led the response to this crisis, trying to keep workers connected to their jobs and supporting those who have been laid off.

For our part, by maintaining low interest rates, the Bank is supporting consumer spending and business investment by making borrowing more affordable. This helps the economy grow, which creates jobs. When the economy gets back to its full capacity with full employment, it helps us achieve our inflation target.

Given the depth of the economic hole, it’s clear much of this support will be needed for some time.

The stronger, more durable and more inclusive the recovery, the more opportunity there is for everyone. And the more opportunity there is for everyone, the stronger the recovery, and the more durable is growth.”

Watch Governor Macklem answer questions from the media following his speech.

Our decision yesterday

In reviewing the latest economic data, Governing Council noted some good news from the reopening phase. The economy has bounced back, employment has rebounded (albeit unevenly), and both household spending and exports are up.

Despite these positive signs, we expect a slow and choppy recovery. Business confidence and investment are weak, and there is much uncertainty about the course of the pandemic. Inflation is also close to zero and will likely stay that way for the foreseeable future.

The Governing Council will hold the policy interest rate at the effective lower bound until economic slack is absorbed so that the inflation target is sustainably achieved.”