Navigating uncharted territory

Deputy Governor Tim Lane discusses how the Bank of Canada approached decision making during the unprecedented upheaval brought on by the COVID‑19 pandemic.

We acted swiftly and decisively

In the early days of the pandemic, Canada’s gross domestic product (GDP) dropped sharply, three million Canadians lost their jobs and inflation plummeted to almost 0%. The Bank responded quickly to:

• prevent further impacts, like a drop in spending and investment by households and businesses
• prop up financial markets and restore market functioning

With our economy now substantially recovered, we have ended all the extraordinary measures—such as quantitative easing and forward guidance—taken to get the Canadian economy through the turbulent times.

The pandemic challenged our thinking

Economics textbooks don’t offer a model for getting out of a global pandemic and dealing with the effects of multiple shutdowns. In the face of this uncertainty, the Bank responded aggressively to prevent the worst of all possible outcomes—a severe contraction of the economy and a downward spiral of deflation. We paired our bold intervention with a clear exit strategy so that Canadians could understand how the Bank would respond to future developments.

Today, GDP and employment levels are higher than they were before the pandemic. In fact, businesses are struggling to find skilled workers to fill jobs. And inflation is uncomfortably high, largely because of global supply chain disruptions that happened at the same time as a seismic shift in consumer demand from services to goods.

Our responses evolved with the situation

In line with our core principles, the Bank took a flexible and agile approach to manage the constantly changing situation. And we looked beyond our own expertise to stay on top of new developments.

• We reached out to other sources to build a broader picture of what was happening in the economy and the country as a whole. For example, we looked at data from online restaurant reservations and Interac to gauge consumer spending patterns. And we relied on epidemiological experts for up-to-date information on how the virus might evolve.
• We expanded our assessment of the labour market to learn more about how the pandemic was affecting different groups of workers—particularly those more deeply affected by the shutdowns, such as low-income workers and women.
• We broadened our stakeholder outreach to hear from more diverse groups of Canadians and sharpen our insights into the economy.

Although uncertainty can’t be eliminated entirely, taking bold risks at the outset paid off. And being clear in our communication gave Canadians confidence in our ability to manage a situation like no other.