Stephen Poloz arrives before a press conference on economic support for Canadians impacted by COVID-19, at West Block on Parliament Hill in Ottawa, on Wednesday, March 18, 2020.THE CANADIAN PRESS/Justin Tang

Stephen Poloz arrives before a press conference on economic support for Canadians impacted by COVID-19, at West Block on Parliament Hill in Ottawa, on Wednesday, March 18, 2020.THE CANADIAN PRESS/Justin Tang

The Bank of Canada slashed its key rate one year ago. This is how it happened.

Stephen Poloz recalls trying to douse the economic flames caused by the pandemic

In February 2020, the governor of the Bank of Canada was testing the seal on his N95 face mask by trying to smell the scented gas his security team pumped at him.

In that moment, it occurred to him that COVID-19 might turn out to be more than just a health concern.

Stephen Poloz needed the protective mask in case he contracted the virus during a flight to Australia for an annual economic meeting. By the time he was in Riyadh, Saudi Arabia a week later for a meeting of G20 central bankers and finance ministers, the virus’s accompanying economic concerns were becoming apparent in places like Italy and Singapore.

Poloz had his own pressing economic concerns. Oil prices were plummeting, enough so that the Bank of Canada’s senior leadership was ready to cut its key policy rate by half a percentage point in response, even as COVID-19 cases rose worldwide. The cut, at the time the first since 2015, came March 4, a date already scheduled for a rate announcement.

“We believe we’ve done a lot there to cushion a blow,” Poloz said at a news conference following a Toronto speech the next day. “We don’t know how big the blow might be, so we’ll be looking at ways to figure out how big that blow might be and how long it might last.”

Before he faced the media, Poloz recalled scrubbing his hands, after shaking hands of many in the packed ballroom who came to hear him speak.

So began a month like no other at the central bank. After that first move brought the rate down to 1.25 per cent, Poloz oversaw two more cuts and the launch of a bond-buying program to prop up the economy as the first wave of the pandemic crashed on Canada’s shores.

Poloz, now with the Lawrence National Centre for policy and management at Western University, recalled the events in detail during a recent interview with The Canadian Press.

The day after the speech, Poloz called a snap meeting with the heads of the country’s big banks. The lessons of the 2008-09 financial crisis hung over the meeting, where the governor and his colleagues emphasized the importance of keeping credit flowing to companies and suggested giving mortgage holders payment holidays if things got really bad.

Poloz recalled speaking the same day with the deputy minister at the Finance Department, and with Prime Minister Justin Trudeau at the end of the day.

A week later, on the morning of Friday, March 13, then-finance minister Bill Morneau called. The government planned to unveil an economic aid package that afternoon, and Morneau wanted Poloz to join him in hopes of projecting some confidence. Preventing a panic was top of mind.

“That’s when you get a real recession,” Poloz said. “It’s hard to restore confidence after it’s been shattered.”

Poloz had to check with his deputies on the central bank’s governing council, which was already considering cutting rates by another 0.5 per cent. They weighed cutting rates that day, rather than wait until mid-April for the next scheduled announcement and release of the bank’s monetary policy report.

In a few hours, the decision was made: The bank would drop the rate by another half a point, to 0.75 per cent.

Poloz’s chief of staff, Jill Vardy, and Carolyn Wilkins, then second-in-command at the Bank of Canada, worked out the wording of a press release. Poloz prepped for media questions. His opening statement was the last item to be finished, delivered to Poloz minutes before we went before the cameras with Morneau and the superintendent of financial institutions.

“(Morneau’s) insight into having the two of us there was a good one,” Poloz said. “At the time, there was no inkling that we might have anything to enact. It kind of just came together.”

The joint appearance created some unusual side-effects: When Poloz agreed to appear alongside Morneau the next week, jittery investors took it as a bad sign. The bank had to take the unusual step of issuing a notice that it wasn’t planning to cut rates to calm markets.

He said the rate-setting group still hoped to wait for the scheduled rate decision on April 15 to make a further drop, giving the bank time to put together a comprehensive package.

“In the background, we knew things were caving in and we were going to need to probably make the third move,” Poloz said. “And sooner than later.”

Other central banks, with whom Poloz was in regular contact, were slashing rates and heading to what’s known as the “lower effective bound” — basically as low as rates can go without turning negative.

What Poloz said tipped the scales toward action was a distortion at the front end of the money market, where dealers were paying more to finance their inventories of government debt than they actually earned on the debt itself. Poloz said they couldn’t let that persist until mid-April.

So early Friday morning, March 27, the Bank of Canada sent out a notice. The key rate was going to 0.25 per cent. It also launched bond-buying programs so the financial system wouldn’t freeze up.

His tenure as governor ended last June, and he’s been an observer since.

Thus far, the economy looks OK, Poloz said, noting that there are big fiscal decisions looming that will take some real orchestration.

Kind of like fighting a fire.

That was the analogy Poloz used one year ago when he explained the month of monetary moves by saying a firefighter hasn’t been criticized for using too much water.

After trying to douse the economic flames, he is intently watching the rebuild.

“I can’t wait to see how it all turns out.”

economy

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Delta character - and former White Rock resident - Pansy May Stuttard inspects a loaded revolver in the cover photo for Jim Dwight and Gary Cullen’s fascinating biography, Lord don’t want me Devil won’t take me. Contributed photo
West Coast’s ‘Pistol-packin’ Pansy’ lives on in colourful biography

Infamous Delta character ended her days in White Rock and South Surrey

A science class at L.A. Matheson Secondary. March 2021. (Photo: Lauren Collins)
Reports of student attendance ‘dwindling’ at Surrey schools: teachers’ association

STA president said he’s heard from staff that students might not attend in-person for 4th quarter

(Photo: MOSAIC/Facebook)
Organization receives $10K from B.C. government to tackle racism in Surrey, White Rock

Funding to go toward forum for International Day for the Elimination of Racial Discrimination

Vancouver resident Beryl Pye was witness to a “concerning,” spontaneous dance party that spread throughout social groups at Kitsilano Beach on April 16. (Screen grab/Beryl Pye)
VIDEO: Dance party erupts at Vancouver’s Kitsilano Beach to the dismay of onlookers

‘It was a complete disregard for current COVID-19 public health orders,’ says Vancouver resident Beryl Pye

Chilliwack Search and Rescue volunteers say that a call on April 17 on Vedder Mountain was affected by bikers who rode through the rescue site, throwing rocks onto members and the patient. (Chilliwack Search and Rescue image)
Chilliwack Search and Rescue team, and patient, sprayed with rocks and dirt during rescue

Volunteer crew speaks out after riders on Vedder Mountain show no courtesy at accident scene

File photo. THE CANADIAN PRESS/Graeme Roy
One man dead after shooting in Downtown Vancouver

This is Vancouver’s fifth homicide of the year

A syringe is loaded with COVID-19 vaccine at a vaccination clinic run by Vancouver Coastal Health, in Richmond, B.C., Saturday, April 10, 2021. THE CANADIAN PRESS/Jonathan Hayward
B.C. to open up COVID vaccine registration to all B.C. residents 18+ in April

Registration does not equate to being able to book an appointment

Cannabis bought in British Columbia (Ashley Wadhwani/Black Press Media)
Is it time to start thinking about greener ways to package cannabis?

Packaging suppliers are still figuring eco-friendly and affordable packaging options that fit the mandates of Cannabis Regulations

(Black Press file photo).
Multiple stabbings at Vancouver Island bush party

Three youths hospitalized after an assault in Comox

Selina Robinson is shown in Coquitlam, B.C., on Friday November 17, 2017. British Columbia’s finance minister says her professional training as a family therapist helped her develop the New Democrat government’s first budget during the COVID-19 pandemic, which she will table Tuesday. THE CANADIAN PRESS/Darryl Dyck
B.C. finance minister to table historic pandemic-challenged deficit budget

Budget aims to take care of people during pandemic while preparing for post-COVID-19 recovery, Robinson said

Police tape is shown in Toronto Tuesday, May 2, 2017. Statistics Canada says the country's crime rate ticked up again in 2018, for a fourth year in a row, though it was still lower than it was a decade ago. THE CANADIAN PRESS/Graeme Roy
CRIME STOPPERS: ‘Most wanted’ for the week of April 18

Crime Stoppers’ weekly list based on information provided by police investigators

Each spring, the Okanagan Fest-of-Ale is held in Penticton. This year, as a result of the COVID-19 pandemic, the festival will not be held. However, beer is still available. How much do you know about this beverage? (pxfuel.com)
QUIZ: How much do you really know about beer?

Put your knowledge to the test with this short quiz

Most Read