Deputy Governor Sharon Kozicki emphasized the importance of central bank transparency and accountability in a recent address to the Canadian Association for Business Economics. She reviewed the Bank of Canada's exceptional monetary policy measures during the COVID-19 pandemic and analyzed their effectiveness.
"In March 2020, the world faced an unimaginable health and economic crisis," Kozicki stated. In response, the Bank cut the policy interest rate to 0.25%, implemented emergency liquidity programs, and used quantitative easing (QE) and extraordinary forward guidance to support market functioning and stimulate the economy.
Quantitative easing involved buying more government bonds than usual, which lowered long-term interest rates. Extraordinary forward guidance signaled that interest rates would remain low until certain economic conditions were met, further reducing borrowing costs.
Bank staff research indicated that these tools effectively lowered longer-term interest rates, making borrowing cheaper for households and businesses. The combined monetary and fiscal responses, along with rapid vaccine rollouts, facilitated a relatively quick economic recovery in Canada.
In October 2021, the Bank ended its QE program and began quantitative tightening (QT) in April 2022 by allowing bonds to mature off its balance sheet. QT is expected to be completed by 2025.
Kozicki attributed the smooth QT process in Canada to transparency: "I like to think it’s because we have been transparent." She reiterated the Bank's commitment to openness as a means of maintaining public trust during uncertain times like the pandemic.
The Deputy Governor highlighted that higher interest rates have brought inflation closer to the 2% target, with underlying price pressures easing. The Bank continues to review its pandemic actions and plans to share findings with Canadians while focusing on lessons learned for future monetary policy applications.