Economic shock from COVID-19 to lead to higher indebtedness: Poloz

OTTAWA — Bank of Canada governor Stephen Poloz says the country’s response to the COVID-19 pandemic will “clearly lead to higher indebtedness” once the economic shock has passed.

Poloz points to a drop in interest rates that would normally boost near-term economic growth through greater borrowing. But such borrowing will add to debt levels the central bank has previously warned about.

That can lead slower economic growth and make it more difficult for the central bank to hit its two-per-cent inflation target in the future.

And it can also increase the risk that a future negative shock will have a magnified effect on the economy, Poloz says.

He says the bank is developing new tools to evaluate this trade-off between faster growth today and slower growth down the road.

Poloz makes the comments as part of a speech he is delivering this afternoon that looks back on his time as Canada’s top central banker, which officially comes to an end next week.