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The Bank of Canada rarely sends messages through its deputies. By tradition, the junior members of the Governing Council say little in public that hasn’t already been said by their boss, the governor. That makes the speech this week by Timothy Lane significant, as he delivered an equivocal defense of Prime Minister Justin Trudeau’s plan to run deficits to boost economic growth. After remaining silent on the issue during Stephen Harper’s reign, the central bank now is providing intellectual cover for the government as it confronts doubters ahead of its first budget.
Lane, who joined the Bank of Canada’s policy committee more than four years before Stephen Poloz became governor in 2013, told an academic crowd in Montreal on February 8 that there are circumstances when fiscal policy is the most appropriate tool for managing the economy. He said one such circumstance is a period of “sustained weak aggregate demand” when any move to lower interest rates could risk a financial crisis and regulatory measures to constrain asset-price bubbles have been exhausted. Sound like any country you know? Canada, maybe? “In such circumstances, fiscal policy may be called upon to provide stimulus, particularly since it is likely to be more effective at low interest rates,” Lane said. Continue reading at Canadian Business ... Comments are closed.
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