Bank of Canadas Wilkins Says Balance Sheet Has Tripled Since COVID-19 Shutdowns

OTTAWA—The Bank of Canada will need to maintain its independence to aid the economy during and after the COVID-19 pandemic, particularly as the countrys debt levels rise, says the banks second-in-command.

In a speech on May 4, senior deputy governor Carolyn Wilkins detailed how the banks actions through the pandemic have been aimed at ensuring businesses and individuals can access lines of credit and short-term loans, and spur demand during an expected recovery through low interest rates.

The banks balance sheet has more than tripled from around $120 billion in early March before the shutdown, to around $385 billion as of last week as it purchases more federal and provincial bonds, effectively providing low-cost loans to finance government stimulus that federally stands at roughly $146 billion.

Wilkins said the financial risk to taxpayers is low because of restrictions around the bond purchase programs.

The country will be left with more public and private debt than before the pandemic forced a freeze on economic activity, she said.

“Whether its a risk of inflation or deflation, central bank credibility is critical,” she said in the text of her speech posted online by the bank.

“This requires keeping our eye on the ball in terms of our mandate and retaining the operational independence to achieve it.”

The question of keeping the bank free of political influence faced Finance Minister Bill Morneau last week when he unveiled the next governor, Tiff Macklem.

The Liberals and central bank have an “effectively working relationship,” Morneau said at the Friday press conference, adding the Liberals saw “the independence of the Bank of Canada as critical” to the future of the economy.

Wilkins was considered a top candidate to replace outgoing governor Stephen Poloz, just as Macklem had been the favourite seven years ago when he was the banks No. 2 and Poloz got the top job.

The bank estimates that pandemic-related restrictions, which have closed non-essential businesses and led to more than seven million workers receiving federal aid, will result in a 15 to 30 percent drop in gross domestic product for the second quarter from its level in late 2019.Read More – Source