stephen s poloz : release of the monetary policy report opening statement by mr stephen s poloz, governor of the bank of canada, at the press conference following the release of the monetary policy report, ottawa, ontario, 15 april 2020. * * * good morning. senior deputy governor wilkins and i are glad to have the opportunity to answer your questions about today ’ s policy announcement and monetary policy report ( mpr ). allow me to begin with a few comments. the canadian economy is experiencing a significant and rapid contraction. the shock is a global one, affecting all countries, but commodity - producing countries like canada are being hit twice. in the very near term, policy - makers can do little more than cushion the blow. it is worth spending a moment to emphasize why the central bank ’ s inflation targets matter so much, even at a time such as this. inflation targets were put in place around the world when the dominant worry was higher inflation. today, the situation is very complex. however, governing council agreed that the balance of forces points to weaker demand and a decline in inflation as the dominant concern. inflation targets provide an anchor for the economy — particularly inflation expectations — and a guide for policy actions equally in today ’ s situation. keeping inflation close to target means taking measures to ensure that the economy stabilizes and then returns to full capacity. failing to do so now would mean that inflation would persistently fall short of target. if inflation were to fall short of target for an extended period, faith in that anchor would be eroded, and policy - makers would face even greater challenges in returning the economy to full capacity. this challenge can become particularly acute should inflation fall persistently below zero. subzero inflation, or deflation, would interact with existing indebtedness in a particularly undesirable way. specifically, negative inflation would increase the real value of outstanding debts while it would erode the ability of companies and households to service their debt — a very difficult mix for the financial system. fortunately, the risk of sustained deflation in canada is low, for several reasons. first, there has been a vigorous and elastic response from governments to the pandemic. these actions will put a floor under the economy and lay the foundation for the subsequent recovery. this is especially true for wage subsidies, which are designed to maintain the employee - employer relationship, thereby buttressing confidence and facilitating the recovery. second, canada began the pandemic episode with the economy operating near potential

reached a peak when the final elements of the currency regulations were abolished in 1989, enabling the free movement of capital across our borders. however, this is nothing new, either. prior to 1914 capital could move freely over national borders. there was extensive direct cross - border investment. this was when the swedish railway network was built up and the swedish hydroelectric power system was built with the aid of foreign capital. however, i think that the deregulation of the capital markets was still seen as something new and that it is the political change during the post - was period that has mainly changed the conditions for economic policy. what people perceive as " globalisation " is probably exactly that, combined with the fact that the new information technology enables all transactions to be implemented much more quickly than before. however, the concept of globalisation also includes the growth of multinational companies, with production units in different countries, the fact that an increasing number of countries are drawn into the international trade exchange and that the labour force moves freely between countries, which is the case at least within the eu. when currency regulation was abolished, foreign investors could begin to buy swedish treasury bonds and shares. swedes could also begin to save in foreign banks, pension insurance funds and shares. there had existed major obstacles to such transactions before, although they were not completely impossible to overcome. foreign ownership of swedish shares and sek - denominated bonds rose from almost zero in 1980 to sek 1, 350 billion in 2001. when the barriers for capital movement were removed in this way, sweden became subject to daily examination. the slightest sign of mismanagement of economic policy, such as a growing budget deficit, rising payroll expenses or inflationary tendencies risks leading to foreign investors selling off their holdings of swedish treasury bonds and shares. signs of mismanagement can also lead to swedish households and companies choosing to invest their money abroad. this was the mechanism that made it impossible for us to keep the fixed exchange rate regime in 1992. at the time of the deregulation, sweden had a history of high inflation and other imbalances. doubts regarding the stability of the swedish economy led to capital outflows, rising interest rates and a shrinking foreign currency reserve. despite massive supporting purchases of the swedish krona and a drastic defence involving a 500 per cent daily lending rate for banks borrowing from the riksbank, the defence of the exchange rate failed. this meant that the general public had to live for a period with a 25 per cent interest rate