OTTAWA — With economic recovery still looking shaky, the next move by the Bank of Canada may be to just start printing money.
Increasing the money supply, or quantitative easing as the term is known, has become the latest and perhaps last major tool open to central bankers to try and spark some life into the stalled engine of their economies.
The price can be high. Devaluation of the loonie and run-away inflation down the road. But, with economies running on empty, central bankers are inclined to focus more on solving the real mess at hand than theoretical messes of the future, say economists.
“Printing money,” says CIBC chief economist Avery Shenfeld, “looks like the key ingredient in preventing a global recession from tipping into a lasting depression.”
Bank of Canada governor Mark Carney opened the door to quantitative easing last month when he cut the overnight rate to 0.5 per cent, all but emptying the chamber on the central bank’s ability to directly impact interest rates.
And although he appeared to close the door part way in a speech last Thursday, economists say it’s unlikely Carney would have sent the signal in the first place unless he intended to carry through.
They note that nothing that has happened in the economy since Carney’s original pronouncement would likely have changed the game plan. If anything, the prospects for a quick and strong recovery appears to have receded.
“This is not going to be a V-shaped recovery,” said Derek Holt of Scotia Capital Markets, referring to the quick updraft that often follows a sharp downturn.
Canada is getting the sharp downturn in spades, with estimates of an up to nine per cent contraction in economic activity in the first quarter of 2009, a post-Great Depression record. But the updraft is increasingly being discounted — the Organization for Economic Co-operation and Development now says Canada’s economy will be flat at best in 2010.