Bank of Canada opens door to negative interest rates

OTTAWA – The Bank of Canada is saying for the first time that it would consider pushing its trend-setting interest rate below zero if the country ever suffered another major economic shock such as the financial crisis.

In prepared remarks of a speech today, governor Stephen Poloz said a negative interest rate was among several potential unconventional monetary policy tools the bank could apply in an unlikely crisis scenario.

Poloz, however, stresses that the fact he is listing these measures should in no way be taken as a sign the bank is about to use any of them.

He says the bank is moving its effective lower bound into sub-zero territory for the first time — dropping it to negative 0.5 per cent from the positive 0.25-per-cent mark it set in 2009.

Poloz says the bank has also added another new unconventional measure to its arsenal — one that would ensure economically important sectors had continued access to funding even when the credit supply was impaired.

He says after examining the experiences of other countries since the financial crisis, the bank is adding new potential remedies to a cabinet already stocked with options like forward guidance and quantitative easing.

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