The Bank of Canada believes the economic outlook remains fluid with both downside and upside risks “in play,” and stands ready to move in either direction to respond, a top official said.

Economic activity so far is largely as expected but the future is uncertain and it’s possible developments will be either worse or better than expected, Deputy Governor Paul Beaudry said Thursday in prepared remarks. A second wave of Covid-19 cases could hamper the economic recovery, while the roll-out of vaccines could lead to a faster rebound.

“Going forward, both downside and upside risks to inflation are in play,” Beaudry said in the speech, which aimed at providing insight into its latest decision to leave monetary policy largely unchanged. “For the Bank, that means being prepared to respond in either direction,” Beaudry said. “Thankfully, we have the tools to do so.”

In holding its overnight interest rate steady at 0.25 per cent on Wednesday, policy makers restated the bank’s commitment to providing extraordinary monetary policy support until economic slack is absorbed and the 2 per cent inflation target is achieved.

If additional measures are needed, Beaudry said the Bank of Canada could increase the stimulus power of its bond buying program, or target specific yields, a process known as yield-curve control. It could also “reassess the effective lower bound” by lowering its policy rate even further, without going into negative territory. While negative rates are part of the tool kit “in theory,” the deputy governor said the bank doesn’t think they’re productive “barring a dramatically different set of circumstances.”

If a fast vaccination roll-out quickens the rebound, the central bank “may need to re-examine the amount of stimulus needed to achieve our inflation target.”

Beaudry illustrated the various ways the central bank could wind down its purchase program. This includes actively selling off assets on its balance sheet, allowing the maturing assets to roll off or reinvesting the proceeds from maturing assets into new ones.

For now, the bank appears to be in a wait and see approach with offsetting economic factors at play.

Beaudry reiterated the Bank of Canada’s pledge to hold the policy rate at its effective lower bound “until economic slack is absorbed, so that the 2 percent inflation target is sustainably achieved.” While the bank’s October forecasts show that won’t happen until 2023, “we have not yet done a full analysis of all new information to shift that assessment.

“What we do know today is that Canada’s economic recovery will continue to require extraordinary monetary policy support,” Beaudry said.