remarks by paul beaudry deputy governor fredericton, new brunswick, moncton, new brunswick, saint john, new brunswick december 10, 2020 delivered virtually our quantitative easing operations : looking under the hood introduction good afternoon and thank you very much for the kind introduction, john. i ’ m really pleased to have the opportunity to talk with all of you today — even if we are doing so virtually and from opposite coasts. i ’ m now a resident of canada ’ s west coast, but i hold fond memories of time spent vacationing in the maritimes from my home town of quebec. as you know, the bank made the decision yesterday to maintain our target for the overnight rate at 0. 25 percent, and we ’ ll spend some time discussing that later. but first, i want to talk about some of our actions to address covid - 19 and the immense challenges this pandemic poses to the financial well - being of canadians. since the pandemic hit in march, we have taken swift and decisive actions to help canadian households and businesses bridge this short - term crisis. but we are also concerned with providing a strong foundation for longer - term recovery. in the face of the pandemic, we lowered our policy interest rate to 0. 25 percent to ensure lower borrowing costs for households and businesses. we have committed to maintaining our policy rate at the current level until our inflation objective is achieved. we also launched nearly a dozen liquidity facilities and asset purchase programs to keep markets functioning and credit flowing as well as to allow interest rate cuts to work their way through the economy. i would like to thank stephane lavoie, james macgee and jonathan witmer for their help in preparing this speech. not for publication before december 10, 2020 1 : 30 pm eastern time - 2today, i ’ ll discuss our main large - scale asset purchase program — the government of canada bond purchase program1 — in greater detail. we commonly refer to this program as quantitative easing. what ’ s important to remember about this and other programs is that they are all grounded in the same policy framework that has served canada well for years. each of our actions has been designed to return the economy toward its full capacity to support our 2 percent inflation target. with this in mind, i would like to clarify some of the mechanics of and potential misinterpretations about our quantitative easing — or qe — program. when we conduct qe, the bank purchases bonds in the secondary market that

for example, under deflation, firms tend to focus more on how to increase the price competitiveness of the existing products rather than developing a new field. we should recognize that such price competitiveness alone will make it difficult to gain momentum for growth. so far i have pointed out, from the perspective of corporate management, several possibilities that deflation itself might induce deterioration in economic activity. to get back to what i was referring to the temperature of the economy, we are aware not only of a decline in temperature owing to bad health but also of a risk that a decline in temperature might worsen illness. the existence of such risk is what makes overcoming deflation all the more important. to overcome deflation, it is necessary to consistently continue with therapy for the fundamental cause of a demand shortage. at the same time, to avoid creating a situation in which the economy will be aggravated, originating from deflation, that is, deflation inducing deflation, it is important to act on firms so that their business sentiment will not weaken. in doing so, a key will be the recovery in private demand, including business fixed investment and household consumption. raising firms ’ growth expectations will be the basic premise for the recovery, as i mentioned earlier. in that regard, the challenge of overcoming deflation is directly linked with the challenge for japan ’ s economy in a longer perspective. iii. medium - to long - term challenge confronting japan ’ s economy japan ’ s longer - term challenge is to regain the confidence of firms and households in the outlook for japan ’ s economy in the long term. to achieve this, we must discuss the issue of where to find japan ’ s source of energy to achieve sustainable growth over the long term. it seems to me that those issues are frequently discussed by dividing demand into two large categories, namely domestic demand and external demand, and considering which of the two is of greater importance. in doing so, the phase of economic expansion from 2002 is often cited. since the driving force for economic activity during this phase was the substantial increase in exports, it tended to give the impression that japan ’ s economy was led by external demand. the major reason why this phase of economic expansion ended was the sharp deterioration in overseas economies triggered by the failure of lehman brothers in the autumn of 2008. from that experience, what tends to be drawn out is a lesson that economic growth led by domestic demand is desirable rather than vulnerable economic growth that is dependent on overseas economies. however, we should not neglect