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Assuming that funding markets remain stable, the debate will shift to what the central bank could do to stoke a faster recovery. Policy-makers, who are mandated to hit an inflation target of about two per cent, acknowledged the recession has dropped the annual rate of price increases to near zero.
With the benchmark rate essentially as low as it can go without seriously distorting the financial system, the next best option for the central bank is to increase its purchases of financial assets. So far, the goal has been simply to stabilize credit markets. But it could potentially stimulate demand by increasing the volume of purchases, or targeting a different mix of assets to keep downward pressure on a wider range of retail and commercial interest rates.
“We believe the Bank of Canada will continue to expand its balance sheet until the end of the year to support the recovery,” said Charles St-Arnaud, chief economist at Alberta Central in Calgary.