Economic stimulus should have been halted sooner, says Bank of Canada

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La economic stimulus should have been halted sooner, says Bank of Canada

The Bank of Canada is trying to control inflation.

In retrospect, governments and central banks should have rolled back stimulus earlier when economies began to recover from the COVID-19 pandemic, which likely would have limited inflation, an executive admitted on Tuesday. from the Bank of Canada.

In a speech at the University of Waterloo, Deputy Governor Paul Beaudry said that a faster global lifting of measures fiscal and monetary stimulus during the post-pandemic recovery would likely have translated into lower inflation.

Mr. Beaudry pointed out that the fiscal and monetary policies of various countries have had spillover effects elsewhere in the world that are not always taken into account.

One ​​of the lessons learned from the global financial crisis of 2008-2009, he recalled, is that countries would have benefited from a more gradual lifting of raise due to fallout effects.

This lesson, he said, influenced policy decisions during the pandemic. However, Beaudry added, the COVID-19 economic crisis was different and public health measures meant that supply in many sectors could not keep up when demand fell. started to rebound.

There have been bottlenecks in these sectors due to an increase in demand resulting from a combination of policies stimulus, closures and reopenings as well as consumers turning away from the service sector.

Simultaneous stimulus measures introduced by countries through government support programs and low interest rates have had ripple effects globally and contributed to bottlenecks. supply chain throttling, the Deputy Governor explained.

“There may be a process of lifting a bit A faster global stimulus would have benefited all countries more. »

— Paul Beaudry, Deputy Governor of the Bank of Canada

However, stimulus measures have contributed to a faster-than-expected rebound in the economy, labor markets having recovered six months earlier than after the global financial crisis, added Mr. Beaudry.

Clearly, the budgetary measures adopted helped prevent more serious consequences.

Going forward, the Bank of Canada will focus on clear communications with the public about its policy decisions, Mr. Beaudry explained, to ensure that Canadians do not expect that high inflation will persist for a long time.

Central banks are generally concerned when individuals and businesses expect inflation to remain high, as these expectations can translate into even higher prices.

Mr. Beaudry also addressed concerns raised by some that the central bank would need to oversee a serious economic slowdown, or even a recession, to bring down inflation.

The Bank of Canada believes that people set their inflation expectations based partly on past inflation and partly on central bank communication about the direction of monetary policy, said observe Mr. Beaudry.

The deputy governor said the bank is looking at effective communication with the public about monetary policy to help alleviate some of the heightened concerns about the persistence of the tide. inflation.

“During this difficult time, the bank is committed to keeping its communications clear, simple and well-focused on its mandate about of inflation.

— Paul Beaudry, Deputy Governor of the Bank of Canada

He added that the more effective the bank is in its communications, the more a recession can be avoided.< /p>

The Deputy Governor concluded by reiterating the bank's commitment to bringing inflation back to its 2.0% target and thereby fulfilling its mandate.< /p>

We will continue to take all necessary measures to restore price stability for households and businesses.

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