Bank of Canada Governor Stephen Poloz says this country could theoretically follow the lead of other countries that have recently gone to negative interest rates in order to stimulate the economy. Poloz made his remarks to a business audience Tuesday 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 holster 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.
Poloz was speaking after the Canadian dollar Tuesday shed another half-cent from the previous day, to a new 11-year low under 74 cents U.S.
But while Poloz opened the door to the possibility of negative interest rates, he stressed that the bank has no current intention to do so.
The Bank of Canada twice this year cut its benchmark interest rate in an attempt to stimulate the economy.
But other countries have gone even further, slashing their rates below zero in an attempt to encourage spending and investment, instead of fearfully hoarding capital.
Switzerland, Sweden, Denmark and the European Central Bank have all dipped their benchmark rates below zero for various reasons in recent years. Switzerland's central bank rate is now minus 0.75% for example. That means banks must pay a fee to store money with the central bank — something that encourages them to not do so, and deploy their capital into other investments that grow the economy.
