Such a loan margin squeeze may occur because a significant part of banks’ funding costs is unlikely to fully reflect the central bank’s move to negative rates: for a variety of reasons, banks’ retail deposits are essentially floored at zero, as was also emphasised in the keynote speech by Eggertsson.
The Bank of Canada remains committed to inflation targeting and to the expert execution of all of its responsibilities. The Bank is also committed to exploring how best to contribute to the Canadian economy in a world that is going through fundamental structural change. It’s in this context that the Bank is seeking to advance the frontiers along all its business lines.