In his December 8th speech, the Governor of the Bank of Canada, Stephen Poloz introduced the possibility of negative interests as a policy tool. He was adamant that the Bank was not embarking upon this policy, rather it was exploring the implications of using such an unconventional policy instrument in times of economic shock or major dislocations. It was his view that “it’s prudent to be prepared for every eventuality.” (1)
Yet, his discussion went beyond just academic musings and into the practical realm of how negative interest rates would impact the Canadian financial markets. In 2009, the Bank looked at the application of negative interest rates, but rejected it as a possible tool. What has changed since that time that caused the Bank to come out in favor of such an unprecedented policy move?
