Canada’s economy could rebound faster than expected if consumer spending jumps in the wake of a successful Covid-19 vaccination effort, says Bank of Canada Governor Tiff Macklem.
On the other hand, if the economy weakens amid a second wave of infections, Macklem indicated the central bank could cut already record low interest rates even further.
In late October, the central bank said it assumed a vaccine would not be widely available until mid-2022. Since then, several manufacturers have announced potential vaccines that could be distributed starting early in 2021.
“It is possible, especially when there is a vaccine, that households will decide to spend more than we have forecast and if that happens the economy will rebound more quickly,” said Macklem in response to questions from the House of Commons Finance Committee.
In late October, the Bank of Canada forecast the economy would not fully recover until some time in 2023, a forecast Macklem repeated in his opening remarks to the Finance Committee. Earlier this year the central bank slashed its key interest rate to 0.25%.
“We could potentially lower the effective lower bound, even without going negative. It’s at 25 basis points, it could be a little bit lower,” Macklem said, repeating that negative interest rates would not be helpful for the Canadian economy.
The U.S. Federal Reserve currently has a target for its key rate of 0% to 0.25%. The Reserve Bank of Australia this month cut its policy rate to 0.1%. Some other central banks also have benchmark rate that are less than 0.25%, such as the European Central Bank and the Bank of England.
“We want to be very clear – Canadians can be confident that borrowing costs are going to remain very low for a long time,” said Macklem.