know we are accountable to them. we have a lot to talk about, so let ’ s dive in. a crisis like no other first, let me take you back to march 2020. as the covid - 19 pandemic took hold, large parts of the economy shut down and financial markets were severely shaken. policy - makers here and around the world were worried we would see a repeat of the great depression. confronted with an unprecedented crisis, the bank took immediate action. we cut the policy rate to 0. 25 %, which is our effective lower bound. we also launched emergency liquidity facilities and programs to restore financial market functioning. and the bank did not act alone. governments in canada did their part, as did governments and central banks around the world. by the summer of 2020, financial markets were functioning again, but canada was still in a health and economic crisis. 1 millions of people had lost their jobs and we were facing the deepest economic decline in decades. inflation had turned negative, and there were worries that deflation would take hold. we did not have a vaccine at that point, so there was no way to know when, or even how, the pandemic would end. faced with the unknowable, governing council judged more stimulus was needed to revive the economy and sustainably return inflation to the 2 % target. interest rates were as low as they could go, so the next step was to look in our extended monetary policy tool kit. 2 two tools were well suited : qe and extraordinary forward guidance. our exceptional actions remember, monetary policy is all about shifting the timing of spending to stabilize economic activity and inflation. central banks lower interest rates to encourage spending when the economy is weak. whether it is individuals buying things such as home office furniture and fitness gear or a business investing in, say, new facilities or equipment — this spending protects jobs and ensures the economy won ’ t end up as weak as it could have been. 1 j. fernandes and m. mueller, “ a review of the bank of canada ’ s support of key financial markets during the covid - 19 crisis, ” bank of canada staff discussion paper no. 2023 - 9 ( april 2023 ). 2 g. johnson, s. kozicki, r. priftis, l. suchanek, j. witmer and j. yang, “ implementation and effectiveness of extended monetary policy tools : lessons from the literature, ” bank of canada staff

discussion paper no. 2020 - 16 ( december 2020 ). - 3but when policy interest rates are as low as they can go, central bankers need other tools to add stimulus. this is where qe and extraordinary forward guidance come in. under qe, a central bank buys a lot more government bonds than usual. this bids up the price of the bonds and lowers their returns, or yields. lower yields on government bonds pull down the lending rates that matter to households and businesses. this makes borrowing cheaper. extraordinary forward guidance also helps bring down longer - term rates. the way it works is a central bank signals it will keep the policy rate at its lowest possible level until a specific condition is met or for a specific period, which is typically longer than financial markets would otherwise expect. by lowering borrowing costs, both qe and extraordinary forward guidance encourage spending and reduce the risk that inflation will fall short of the 2 % target. these exceptional policies can also have an effect through the exchange rate. 3 all else equal, lower interest rates in canada may prompt some investors to shift their funds out of canadian dollars and into other currencies. this could lead the canadian dollar to depreciate. a weaker currency makes canadian exports more attractive, which boosts the economy. let ’ s turn now to the effectiveness of qe and extraordinary forward guidance during the pandemic. one way to gauge the impact of exceptional policies is to look at how other interest rates moved compared with our policy rate. here, i ’ ll compare how much five - year government bond yields fell relative to the decline in our policy rate. let ’ s consider the last four periods when the bank cut interest rates by 150 basis points ( bps ) or more : the mid - 1990s, the early 2000s, the 2008 – 09 global financial crisis and, finally, the covid - 19 pandemic ( chart 1 ). keep in mind, we could not lower the policy rate as much in the pandemic as in the other periods because we were already close to the effective lower bound. despite this, fiveyear rates moved more relative to our policy rate during the pandemic. 3 s. kabaca and k. tuzcuoglu, “ international transmission of quantitative easing policies : evidence from canada, ” bank of canada staff working paper no. 2022 - 30 ( june 2022 ) chart 1 : the movement of long - term rates relative to the policy rate in recent easing cycles