We’ll do what it takes to ward off downturn, Morneau says

OTTAWA • Finance Minister Bill Morneau announced the first wave of defensive manoeuvres on Friday in the face of a potential economic downturn caused by the COVID-19 pandemic and plummeting oil prices.

The first step is making $ 10 billion in credit available to small and mediumsized businesses through the Business Development Bank of Canada and Export Development Bank. Morneau said most businesses will be familiar with those organizations, reducing the amount of “red tape” involved in getting loans quickly.

The loans are designed to allow smaller businesses to keep meeting payroll and stocking their shelves during a temporary cash crunch.

“The scale of the response will be against the scale of the challenge,” said Morneau. “We’re trying to make sure that we do what it takes in order to stabilize the economy.”

Superintendent of Financial Institutions Jeremy Rudin announced that OSFI will also allow for $300 billion in extra lending capacity from major financial institutions by lowering the domestic stability buffer.

That $ 300 billion is targeted at “the economy as a whole,” and Morneau said he has been talking to people at the big banks to ensure the money will flow.

Speaking alongside Morneau, Bank of Canada Governor Stephen Poloz announced that the benchmark overnight interest rate will now be 0.75 per cent, down from 1.25 per cent. The cut comes on the heels of an earlier decision to lower the rate just over a week ago.

The most important measure for individual Canadians is likely the broader stimulus package, which won’t be announced until next week, Morneau said.

“What we’re looking at is the direct impacts on Canadians,” said Morneau. The stimulus will include financial support for Canadians unable to work and funding to ensure that “employment opportunities stay robust.”

Other G7 countries have started rolling out their own stimulus packages. Germany announced a 550-billion euro stimulus package on Friday that exceeds the bailout used to battle the 2008 financial crisis. And that amount, German officials said, was just for starters.

University of British Columbia economist Kevin Milligan said on Twitter that the stimulus package should include employment insurance sick leave, an alternative for Canadians who don’t qualify for EI and some other kind of income support for people who have had their lives disrupted by the pandemic. That support could be issued in the form of a beefed-up Canada Child Benefit payment or Old Age Security, allowing the government to use existing programs to quickly get money out.

The extraordinary news conference on Friday brought together Morneau, Poloz and Rudin in Ottawa. As the three men took their seats, Morneau said it was a “rare occasion, and maybe even a first,” for a coordinated policy announcement like this.

“We know there is a level of uncertainty and it’s a significant level of uncertainty because the situation is fluid,” said Morneau, in French. “It is very important to bring about measures that will stabilize our economy.”

The budget, which was originally scheduled for March 30, has been cleared from the calendar and Morneau said the government was entirely focused on the immediate issue of backstopping the economy. Although the budget has not been rescheduled, Morneau made it clear that Canadians can expect an ongoing response as the economic situation develops.

“We will be nimble in our responses,” said Morneau. “We are considering a variety of options.”

Morneau r epeatedly stressed that coordination with all levels of government, Canadian banks, international agencies and G7 countries will be vital. Morneau said he will be holding a weekly conference call with provincial finance ministers and a twice-weekly call with the major banks, to make sure they support businesses and individual customers in a “fair and compassionate way.”

The Bank of Canada’s rate cut represents a drop of 100 basis points in 10 days. Poloz said that plunging oil prices were a major factor in the decision to cut rates twice in quick succession.

“We want people to understand that we’re on the job and we’re going to stabilize the economy,” said Poloz.

The “blunter end” of the economic effect will be felt in oil- producing regions, “but the effects go across the economy,” he said.

Poloz also said that Canada’s healthy fiscal capacity means that it’s unlikely that rates will get into negative territory. “We have a variety of other tools in the tool kit,” said Poloz.

the scale of the response will be against the scale of the challenge.