Canadian policy makers need to look beyond monetary policy to reverse the long-term trend of slowing growth and low interest rates in the face of aging demographics and falling productivity, Bank of Canada’s No. 2 official said.

Senior Deputy Governor Carolyn Wilkins said the central bank is examining ways to bolster its policy framework and tool kit in order to confront the risks associated with low-for-long interest rates. Yet, the best way to guard against a prolonged period of stagnation is to put in place policies that bolster productivity, including those that diversify trade and improve infrastructure.

“Monetary policy can only take us so far,” said Wilkins, in prepared remarks of a speech she’s giving in Toronto. “Canada and other advanced economies will need to do more to support prosperity and avoid suffering from chronically slow growth and weak demand in the future.”

Wilkins didn’t provide any comments on the immediate outlook for interest rates, though she did say the nation’s economy has inflation back at target, unemployment at near historic lows, with household debt levels stabilizing.

The gist of Wilkins’ comments reflected optimism about the Bank of Canada’s ability to tackle future challenges in a world where growth is slower and interest rates are lower. At the same time, she conveyed a sense of caution on what monetary policy can actually achieve. For example, she dismisses the potential merits of so-called “helicopter money” policies, in which central banks create money that’s transferred directly to individuals in order to stimulate spending.

Unlike Japan

In fact, Wilkins rejects the idea that Canada -- unlike other countries such as Japan -- is falling into a state of secular stagnation at all, partly because the Bank of Canada’s monetary policy has been more successful. She cited Canada’s growing population because of immigration, its robust banking system and inflation expectations that are well anchored at two per cent.

“Canada didn’t have to use anywhere near as much policy stimulus as Japan to get the economy back on track,” Wilkins said.

Still, the central bank is thinking hard about what changes it may need to make in order to “navigate” a world of low interest rates ahead of a mandate review in 2021, she said.

Options under consideration include adjusting policy to make up for periods of below-target inflation, or nominal gross domestic product targeting. Broadening the tool kit to include things like forward guidance and negative interest rates also helps, Wilkins said.

Monetary policy, however, doesn’t alter longer-term trends in growth, and Canada needs to do more to boost productivity, she said, including reducing trade barriers between provinces and taking advantage of newly signed trade agreements.

“It will take decisive, ambitious policies at home and abroad,” Wilkins said. “Yet, the payoff is clear; we’ll be more resilient to the next downturn and we’ll secure long-term opportunity and prosperity.”

On more current events, Wilkins said trade war between the U.S. and China has contributed to a slowdown in trade and investment. Despite some progress on the trade front, there is still plenty of uncertainty about the global environment. She even cited coronavirus.