By Paul Vieira 

OTTAWA -- The Bank of Canada anticipates providing the economy with sizable stimulus for the foreseeable future to help the country rebuild from the damage caused by the pandemic, Governor Stephen Poloz said Monday.

He said he believes Canada's economy is in a position to "shake off" the worst from the virus, as it was in a healthy position before the pandemic. To contain the spread of the new coronavirus, authorities here and elsewhere imposed restrictions on economic activity. The ranks of the unemployed have swelled, and data this week are expected to show Canada's gross domestic product shrank by an estimated 10% in the first three months of the year.

"Obviously, the economy will need significant monetary stimulus in the rebuilding stage," said Mr. Poloz, according to prepared remarks he was scheduled to deliver via videoconferencing to an event in Edmonton, Alberta. In response, Canada's central bank cut its benchmark interest rate to near zero from 1.75%, and has engaged in large-scale asset purchases, or quantitative easing, to ensure financial markets operate smoothly. To date, the approach appears to have worked, he said.

The size of the central bank's balance sheet has ballooned since mid-March, to over 400 billion Canadian dollars ($285 billion) from roughly C$120 billion.

Mr. Poloz said the policy responses meant to avoid a virus-fueled depression will lead to higher levels of debt, especially in the government sector. "Getting the economy back onto its growth track -- which is what is required if we are to hit our inflation target -- is the surest means of servicing those debts over time," he said.

It is unclear how long the Bank of Canada will need to offer accommodative policy, he said, given the uncertainty surrounding the virus -- including the possibility of a second wave of Covid-19 cases. Mr. Poloz, whose term as governor ends June 2, said he reckons policy makers will rely heavily on assumptions to guide their decisions.

In remarks last week to journalists, Mr. Poloz said he believed the economy is on track for the central bank's best-case scenario for a recovery, although it may take a year or longer for growth to return to the trend it was on before the coronavirus pandemic began. He reiterated this Monday. "We are going to be on the top end of the range of outcomes that people are talking about," he said in a response to a question.

The central bank's main task is to set interest rates at a level to achieve and maintain 2% inflation. Data for April indicate Canada was the first major economy to be hit with deflation, as consumer prices retreated 0.2% year-over-year.

Write to Paul Vieira at paul.vieira@wsj.com<mailto:paul.vieira@wsj.com>

Write to Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

May 25, 2020 15:34 ET (19:34 GMT)