Canadian Monetary Policy in the Time of COVID-19

Tricky Juggling Act Ahead for Bank of Canada

• The Bank of Canada must handle three challenges simultaneously—providing economic stimulus, hitting inflation targets and managing its massively expanded balance sheet—all while dealing with associated credit and political risks.
• Authors Steve Ambler and Jeremy M. Kronick explore the challenges the Bank of Canada faces as it goes beyond conventional monetary policy with large-scale asset purchases, and provide guidance on how to address them.
• It's imperative that governments clearly lay out a plan for bringing back fiscal anchors that were set aside during the pandemic, with a clear plan for achieving the optimal level for these anchors, conclude Ambler and Kronick. It is also imperative for the Bank of Canada to re-commit, alongside the federal government, to hitting the 2 percent target as part of the 2021 inflation-control renewal.