July 15, 2020 / 3:39 PM / in a month

Bank of Canada's Macklem and Wilkins speak after rate decision

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

Link to the opening remarks: here

MACKLEM ON IMPACT OF BORDER CLOSURE ON HOSPITALITY SECTOR

“The border is closed to people going back and forth and that is having a very severe impact on particularly the hospitality industry. This really highlights why this recovery is likely to be uneven. We’ve started to see some very encouraging numbers as the economy’s reopened, we’ve seen something like a million and a quarter jobs come back. We expect to see some very good numbers through the third quarter as the economy continues to reopen but not all sectors are going to be able to reopen to the same degree. Some activities - like hospitality, like international air travel - are probably going to be down for quite a long time.”

MACKLEM ON SAFE BORDER REOPENING

“When the border opens and it’s safe and advisable for people to travel, that will certainly help the hospitality and travel business but it’s got to be safe before that’s a sensible thing to do.”

MACKLEM ON THE EFFECTS OF CORONAVIRUS

“The reality is... the virus is going to be with us for some time... in the central scenario for the full projection period of about two years. Through this period we are going to have to continue to physically distance... There is also going to be ongoing uncertainty about employment. Some companies unfortunately will go bankrupt. They’re not going to make it to the other side of this.”

“Families are facing real challenges... Hopefully as this virus progresses, we get better and better at managing it and I certainly hope we can find a way to reopen schools and get daycare back to work.”

MACKLEM ON FORWARD GUIDANCE WORDING:

“What that means is that in order for inflation to be sustainably at the 2% target — in other words fluctuating closely around the target — output needs to be very close to potential. We have to have absorbed the excess capacity. If we still have a lot of slack in the economy, even if inflation temporarily gets back to 2%, it will fall back down below 2%. That is not sustainably at the 2% target.”

MACKLEM ON MONETARY POLICY STIMULUS, YIELD CURVE CONTROL

“We did discuss how much monetary policy stimulus is in place, we also discussed the tools in our extended toolkit. We discussed for guidance, we discussed LSAPs, we discussed yield curve control. Where we landed was that forward guidance as we provided, together with a continued commitment to large-scale asset purchase, quantitative easing if you will, at a scale of at least C$5 billion per week of Government of Canada bonds, would reinforce the forward guidance and provide the stimulus that we see the economy needs. We indicated that quantitative easing program would continue until the recovery is well under way.”

MACKLEM ON QUANTITATIVE EASING

“Interest rates will remain at the effective lower bound until capacity is absorbed and inflation is on target. That is reinforced by quantitative easing until the recovery is well under way. Both of those are some ways off.”

MACKLEM ON TOOLS NEEDED TO EXIT WHEN THE TIME COMES

“We have a fairly long slow recovery and when we say the recovery is well under way, that is beyond the reopening phase which we expect to be fairly strong. It’s somewhere in that recuperation phase. We’ll be looking for signs that the recovery is becoming more self sustaining. Logically yes the recovery being well underway comes before capacity has been fully absorbed but both of those are some ways off and we have the tools that we need to exit when the time comes but that is some ways into the future.”

MACKLEM ON EXTENDED PERIOD OF LOW INTEREST RATES

“Our message is that it’s going to be a long climb back and the Bank of Canada is going to be there through the full length of the recovery, until economic slack is absorbed, so that we achieve our inflation target. The message is interest rates are going to be low for an extended period.”

MACKLEM ON ECONOMIC OUTLOOK

“We haven’t produced a regular projection, we’ve produced a central scenario and the reason for that is to highlight that the outlook is highly conditional on the evolution of the virus itself.”

MACKLEM ON LOCALIZED FLARE UPS

“We do anticipate that there will be localized flare ups of the virus and there will need to be localized restrictions. It is going to be important that we are all well prepared for flare ups in the virus.”

MACKLEM ON BROAD BASED LOCKDOWN

“There could be a second wave that requires a broad base lockdown and if that happens we would certainly be knocked off our central scenario. We’d be well below the central scenario and that would imply we would need more monetary policy stimulus to get back to our inflation target.”

MACKLEM ON U.S. ECONOMY

“In the last couple of weeks with the rapid rise of cases of coronavirus in the U.S., we did take down our U.S. projection... The contraction in the U.S. and Canada this year is about the same, but Canada is projected to grow in the central scenario (projection) faster coming out than the U.S. That does spill back into Canada. Exports to the United States are an important component to the GDP in Canada and we have taken that into account in the central scenario. I would underline that there’s a lot of uncertainty, and the principle source of the uncertainty is the evolution of the coronavirus itself.”

MACKLEM ON FORWARD GUIDANCE

“Forward guidance is in our extended toolkit. We have seen an historic drop in economic activity in the first half of this year. It’s going to be a long climb out. We recognize that households and businesses are facing an unusual amount of uncertainty. Against that background, we are being unusually clear that interest rates are going to be low for a long time, and we judge that combined with the reinforcement through quantitative easing provides an appropriate degree of monetary policy to support the recovery.”

Reporting by Steve Scherer, Fergal Smith and Moira Warburton; Compiled by Denny Thomas

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