The Bank of Canada has released its review of pandemic-era policy measures highlighting a need for improved communication and transparency regarding its actions during the COVID-19 crisis.
The review, supported by an independent external assessment, aims to guide future responses.
“The Bank of Canada is a learning institution, and we must take on board the lessons from this unprecedented experience,” said Bank of Canada Governor Tiff Macklem. “This review is important for our accountability and will help us be better prepared and more effective should Canada ever face another economic crisis like this one.”
During the pandemic, the Bank used large-scale asset purchases to stabilize financial markets and later shifted to monetary stimulus through quantitative easing. The review found that failing to distinguish between these objectives created confusion.
“The Bank’s top priority was to get markets working again so that households, businesses, and governments could continue to access credit,” reads the review.
Moving forward, the Bank has pledged to design future programs with clear objectives and exit strategies to avoid misinterpretation.
The review also assessed “Extraordinary Forward Guidance”, used to signal that interest rates would stay low until specific economic conditions were met. While EFG reduced uncertainty, it sometimes led to misconceptions about the duration of low rates. The Bank plans to tie future guidance more explicitly to inflation targets.
“A risk with EFG is that efforts to communicate it as simply as possible can lead markets or the public to interpret it as a broader guarantee than intended,” reads the review. “And if a central bank does not follow what it is perceived to have said, it can be accused of breaking its promise.”
The Bank called for EFG to be tied more clearly to the inflation outlook in the future.
Additionally, the Bank acknowledged it underestimated the rapid rebound in demand during the pandemic and its effect on inflation. However, it concluded that its policies did not independently push inflation significantly above the 2% target.
Macklem previously admitted that federal government overspending and printing too much money via pandemic stimulus packages worsened inflation. When he made those claims back in 2022, he called for a thorough review of the pandemic policies.
Looking ahead, the Bank is enhancing forecasting tools to account for supply chain dynamics and price-setting behaviour. Macklem emphasized that lessons learned will ensure the Bank is better prepared for future crises.
