By Paul Vieira

OTTAWA--A senior Bank of Canada official on Thursday provided one of the central bank's most fulsome defenses yet for purchasing a sizable chunk of bonds during the pandemic, saying the efforts lifted economic output by as much as 3%.

Deputy Governor Sharon Kozicki said bank research indicates longer-term yields, which help lenders set the rates for loans and other forms of credit, would have been nearly a percentage point higher had the Bank of Canada not launched so-called quantitative easing in the spring of 2020. At the time, public-health authorities and governments imposed broad-based social restrictions to slow the spread of Covid-19, leading to employers shedding millions of jobs and output shrinking by the most since the Great Depression. Besides quantitative easing, or QE, in which the central bank purchases bonds to bring down longer-term borrowing costs, the central bank cut its main interest rate by 1.5 percentage points to 0.25% and provided explicit guidance on the rate path.

The research "suggest our policies were effective in increasing borrowing," said Kozicki, according to prepared remarks she is scheduled to deliver at an economics conference in Ottawa. The policies -- QE and extraordinary guidance -- helped lower longer-term interest rates by increasing monetary policy stimulus even after the policy rate was brought down as low as possible."

Kozicki cited an analysis--scheduled for publication on Thursday--that showed the peak impact of QE on real GDP occurred about three to four quarters after the initial Covid-19 shock. Gross domestic product rose by as much as 3% due to extraordinary measures, according to the research. Meanwhile, the bond buying lifted inflation by as much as 1.8 percentage points, the analysis said. The Bank of Canada ended quantitative easing in October, 2021, being the first major central bank to do so after the pandemic.

The central bank's defense of extraordinary measures emerges as inflation, which peaked at 8.1% in June of 2022, has slowed to below 3% in the first four months of 2024.

The Bank of Canada cut its main interest rate by a quarter-point last week, to 4.75%, and Kozicki reiterated Thursday that it's "reasonable to expect" further rate cuts should inflation continue to show signs of slowing and moving closer to the 2% inflation target.

The Bank of Canada deployed quantitative easing for the first time in its history during the pandemic, and its bond purchases garnered criticism by lawmakers in Canada's Conservative Party for fueling the rapid rise in inflation and helping the Liberal government ramp up spending. The Conservatives hold a sizable lead over the Liberals in most public-opinion polls. Conservative Party leader Pierre Poilievre had previously promised to fire Bank of Canada Gov. Tiff Macklem should he win power, but has refrained from issuing that threat for some time.

Kozicki said central bank researchers and officials are putting together an in-depth review of its exceptional measures during the pandemic that will "draw on analysis that's already been done," adding it will assessed by external experts. Publication is set for early 2025. A federal Canadian election must be held no later than October of next year.

"We faced an unprecedented shock when we decided to use QE. The bar for us to use QE again is very high," she said.

Write to Paul Vieira at

(END) Dow Jones Newswires

06-13-24 1006ET