BOC says theoretical lower bound is now -0.50%
When the Bank of Canada lowered rates to +0.25% during the financial crisis, Governor Mark Carney believed it was the lower bound. As conditions worsened, he turned to forward guidance as a way to push rates lower and stimulate the economy.
Now, the BOC believes that Carney could have cut rates three more times to as low as -0.50%.
The zero-bound was long thought of as a problem for banks but after central banks in Switzerland and Denmark have experimented with negative rates, they've proven to work.
Poloz emphasized that they're only contingencies.
"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," Governor Poloz said.
Still, the possibility of using the tool is something markets will need to factor in. The Canadian dollar is already at the worst levels since the height of the crisis and this will be another reason to sell.
Negative rates aren't the only thing in its arsenal, Poloz said.
"In the unlikely event that the economy was hit with another major negative shock, the Bank could implement unconventional monetary policy measures," he said. "These include forward guidance on the future path of its policy rate, stimulating the economy through large-scale asset purchases (commonly referred to as quantitative easing), funding to ensure that credit is available to key economic sectors, and moving its policy rate below zero to encourage spending."
