normal times, when it is working well, the government bond market reflects what investors think about the economy and future interest rates. but when the market isn ’ t working well, it makes it harder to price other assets. it ’ s vitally important that government of canada debt markets are in tip - top shape, so when the bank takes policy actions — like raising or lowering our policy interest rate — these actions will transmit through the economy and we will be better able to achieve our inflation target. effects on our balance sheet all the programs i ’ ve mentioned are designed to keep debt markets functioning, ensure cash is available to those who need it and provide a stabilizing force to boost canadians ’ confidence. as a result of our actions, the bank ’ s balance sheet has grown from about $ 120 billion in early march to over $ 460 billion. it ’ s not new for central banks to expand their balance sheets to satisfy an increased need for liquidity. in fact, this is a key reason why central banks were established — to be a lender of last resort, providing liquidity across the economy. but some people worry this expansion of the balance sheet will lead to runaway inflation. in this environment, we are more concerned with low inflation — and potentially deflation — given the depth of the economic downturn. i want to make it clear that we still have our policy rate at our disposal if inflation were to heat up. it can be raised to influence borrowing costs, credit growth and economic activity, regardless of the size of our balance sheet. early, positive signs with all the programs i ’ ve mentioned and their effects on our balance sheet, i ’ m sure you ’ re wondering what kind of results we ’ re seeing. we published our financial system review a few weeks ago, and we included some early indicators. i ’ m pleased to report that many key financial markets that had been showing signs of significant liquidity stress now appear to have good functioning restored. bid - ask spreads and yield spreads in many markets have narrowed significantly. this tells us that market liquidity has improved. in addition, financial institutions now have better access to funding liquidity in markets. this has had positive, measurable impacts on canadians. in the early days of the pandemic, when lenders had a hard time accessing cash, they passed along their higher borrowing costs to the people and businesses who wanted to borrow from them — even as the bank of canada ’ s policy interest rate fell. after

toni gravelle : economic progress report - keeping markets working remarks by mr toni gravelle, deputy governor of the bank of canada, to the greater sudbury chamber of commerce, sudbury, ontario, 4 june 2020. * * * introduction good afternoon ladies and gentlemen. it ’ s a pleasure to appear before you today to talk about the current economic situation and how the bank of canada is contributing to the eventual recovery. even though i can ’ t be with you in person, i am excited for the chance to return — albeit virtually — to my roots in northern ontario. i grew up on a dairy farm in corbeil, just outside of north bay. i worked at my parents ’ meat shop, which is where i developed my interest in economics and markets. i also have family living in the sudbury area. growing up in northern ontario, i learned that hard work is what supports canada ’ s capacity as one of the largest exporters of base metals. this includes nickel — the commodity that put sudbury on the map. your area ’ s advanced mining and smelter technology is keeping canada at the forefront of low - cost base metal production. my formative years have served me well throughout my career. and they continue to inspire me in my role at the bank of canada where i help lead our work around financial stability and financial market functioning. you can probably imagine that my job has shifted quite a bit given recent market turbulence. the covid - 19 pandemic poses extraordinary challenges to canada, to canadians and to the economy. this has required extraordinary responses — both from a fiscal and a monetary policy perspective. in the short term, we need to keep credit flowing and financial markets working, so households can continue to pay their bills and companies can cover their operating costs. and as we move from crisis response to recovery, we need to maintain a well - functioning financial system. that way, our policy actions get through to people and businesses. in turn, when containment measures are lifted, the recovery will be easier to attain, and sustain. today, i ’ d like to discuss some of the specific programs the bank has put in place to achieve both of these goals — that is, to ensure funding liquidity and market liquidity. i ’ ll also provide you with some early results we ’ re seeing. finally, i ’ d like to talk about our interest rate announcement yesterday and how the actions we ’ ve taken will contribute to the eventual recovery. the importance of liquidity so, what