Canada could theoretically follow the lead of other countries that have recently gone to negative interest rates in order to stimulate the economy, central bank governor Stephen Poloz told a business audience today after yet another drop in the loonie.
Speaking to the Empire Club in Toronto, Poloz said moving its benchmark interest rates below zero is something in the Bank of Canada's monetary policy toolkit that the bank may consider down the line.
That's a departure from 2009, when the bank said its theoretical lowest-possible interest rate was 0.25 per cent because to go lower would have been incompatible with certain financial markets, such as money-market funds.
"The bank is now confident that Canadian financial markets could also function in a negative interest rate environment," Poloz said.
Poloz was speaking after the Canadian dollar today shed another half-cent from the previous day, dropping to a new 11-year low under 74 cents US.
Negative interest rates are a possibility in Canada, Stephen Poloz says. (Chris Wattie/Reuters)
But while Poloz opened the door to the possibility of negative interest rates, he stressed — in English and French — that the bank has no current intention to do so.
"Today's remarks should in no way be taken as a sign that we are planning to embark on these policies," Poloz said. "We don't need unconventional policies now, and we don't expect to use them. However, it's prudent to be prepared for every eventuality."
