Video - February 2016 Canadian Monetary Policy

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In this webcast on Canadian monetary policy, our experts Michel Doucet and Jean-René Ouellet from Desjardins Securities Portfolio Advisory Group talk about the tools the Bank of Canada has to help the economy, including adjusting key interest rates and the possible introduction of quantitative easing.

SUBJECT : Canadian Monetary Policy

EXPERTS : Michel Doucet and Jean-René Ouellet

VERSION: English

Note: The information in brackets "[...]" describes the visual and audio content of the video other than the dialogue or the narration.

[Elegant music begins. The firm's logo appears on screen, as well as the video’s title: Market Trends – February 2016 - Canadian Economy. These images give way to Mr. Michel Doucet and Mr. Jean-René Ouellet sitting in a newsroom like set, in front of a screen on which the following is written: ‘’Market Trends’’].


Michel Doucet (B. Sc., CIM®, Vice-President and Portfolio Manager, Portfolio Advisory Group)

Hello and welcome to Market Trends.

Michel Doucet along with Jean-René Ouellet. Today, we'll talk about Canada’s monetary policy.


Jean-René Ouellet (MBA, CFA, Portfolio Manager, Portfolio Advisory Group)

In our segment on the Canadian economy, our analysis of the economic backdrop indicated that the engines of growth were showing signs of wear. You also concluded that the Bank of Canada could help out. Am I right?


Michel Doucet

You're reading my mind! In fact, the Bank of Canada has been in intervention mode since January 2015. Twice last year, it lowered its key rate by 25 basis points. The key rate is now at 0.50%.


Jean-René Ouellet

But the question is: Can it do more?

Michel Doucet

Surely it can! If the Canadian economy needs additional support, the Bank of Canada has a conventional monetary tool kit and an unconventional one.

Jean-René Ouellet

By conventional, you mean it can lower its key interest rate again?



Michel Doucet

If appropriate, the Bank of Canada could indeed lower interest rates to 0%.


Jean-René Ouellet

Could it follow the path taken by the United States, Switzerland, Japan and the euro zone if the economy doesn't respond adequately?


Michel Doucet

The Bank of Canada also has an unconventional monetary arsenal. It could, for example, give forward guidance to the economic and financial players.

A large-scale asset buying program, often referred to as quantitative easing, could also be announced. The goal being to lower interest rates along the entire yield curve and to anchor borrowing rates for individuals and businesses.

The Bank of Canada could also announce a funding for credit program. The idea is to make sure that economically important sectors continue to have access to funding even when the supply of credit is impaired. In this case, the Bank would provide collateralized funding at a subsidized rate as long as banks meet specified lending objectives.

Lastly, it could lower its key rate into negative territory. In 2009, the Bank said it couldn’t cut its policy rate below 0.25 per cent, because it believed at the time that zero or negative interest rates might be incompatible with some markets, such as money market funds. This was a common view at the time.

Since then, we have seen the experience of several central banks, such as the ECB and the Bank of Japan, the Swiss National Bank, which have all adopted negative policy rates. There, we’ve seen that financial markets have been able to adapt and continue to function. Given these developments, the governor of the Bank of Canada has said twice since December 8, 2015 that it is confident that Canadian financial markets could also function in a negative interest rate environment.

Jean-René Ouellet

What probability do you give to this latter scenario?


Michel Doucet

15 to 20% for now.


My baseline scenario sees another cut in the key rate. Investors will then be calling for a quantitative easing program. A broad-based decline in interest rates and a drop in the Canadian dollar will then follow. I give this scenario a 45 to 50% chance.


Jean-René Ouellet

And the Canadian dollar in all this?


Michel Doucet

Another day, another time.


Jean-René Ouellet

Over what time horizon do you see your baseline scenario unfolding?


Michel Doucet

Six to twelve months! One thing's for sure, analyzing the economic and financial backdrop has never been so exciting for economists and investors alike.

Be sure to join us for the next Market Trends webcast.

[The music begins again. The firm's logo and the website address appear in the middle of the screen. Then the following text appears on the screen « This presentation is given for general information purposes. Desjardins Securities will not be held responsible for errors or omissions in the presentation. The information in this presentation should not be construed as legal, financial, accounting or tax advice. Desjardins Securities strongly recommends that you consult experts in those fields if necessary. Desjardins Securities and its directors, managers, employees and agents will not be held responsible for damages, losses or fees resulting from the use of information contained in this presentation. This presentation may contain statistical data cited from third-party sources believed to be reliable, but Desjardins Securities does not represent that any such third party statistical information is accurate or complete, and it should not be relied upon as such. All estimates, opinions and recommendations expressed herein constitute judgments as of the date of this publication and are subject to change without notice. Desjardins Wealth Management Securities is a trade name used by Desjardins Securities Inc. Desjardins Securities Inc. is a member of the Investment Industry Regulatory Organization of Canada ( IIROC ) and the Canadian Investor Protection Fund (CIPF). ». End of the video. ]

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