Bank of Canada quiet on monetary policy options

In a strange speech last week, Bank of Canada Governor Stephen Poloz acknowledged that the so-called neutral real interest rate was now much lower than before the financial crisis. But in his prepared remarks, Poloz completed ignored the implications for monetary policy. In an environment where the zero bound for nominal interest rates is likely to be a recurring problem, the now standard policy prescriptions are negative short-term interest rates and/or a higher inflation target. Instead, Poloz focused on the prospects for boosting potential GDP growth either through infrastructure spending or additional trade liberalisation.