Breaking down inter-provincial trade barriers and reforming tax and regulatory systems will keep the country's economy humming into the future, the Bank of Canada's second-in-command says.
The bank's monetary policy tool kit can only take the economy so far, senior deputy governor Carolyn Wilkins said in Toronto on Wednesday during a speech that outlined the need for economic innovation and investments from a range of actors.
Wilkins pointed to the current era of low neutral interest rates – the level where monetary policy neither stimulates nor holds back the economy – as leaving central banks with less flexibility to stimulate growth through rate cuts.
Citing a federal advisory panel, she said investing in digital infrastructure, optimizing the tax and regulatory environment, and getting government and business to tag-team on education and skills training spending would make Canada more productive and more competitive abroad.
Wilkins said policies like these could "restore some lost manoeuvrability for monetary policy" and keep the global economy on a more even keel if other countries could pursue a similar agenda.
Her speech came as the central bank considers how it can complement federal policies as it sets to renew its inflation-target framework next year with the federal government.
Officials at the central bank are also assessing different frameworks to see how effectively they create a stable environment for prices, growth and jobs.
An online consultation will launch in the spring, with reports later this year on what the bank hears from its international counterparts, domestic experts, as well as labour and civil groups.
"The right monetary policy framework and tool kit are foundational to economic well-being because they help create a stable environment for businesses and households to plan," said Wilkins, according to a prepared text of the speech released in Ottawa.
"Monetary policy can only take us so far, though. It won't raise trend growth in incomes and it won't raise (neutral rates) either. 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."
Last month, the central bank held its trend-setting interest rate at 1.75 per cent, but hinted a rate cut could be in order in April if the economic outlook sours.
While the central bank expects the economy to expand by 1.6 per cent this year, there remains what Wilkins described as a troubling political and social backdrop: a trade war between the world's top two economies, the United States and China, tensions in the Middle East and the novel coronavirus.
At home, Canada's aging population will also continue to act as a drag on growth, offset somewhat by rising immigration levels.
"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 for people in Canada and around the world."
The central bank will also revise its estimate of the neutral rate in its April monetary policy report. The estimated range at the moment is between 2.25 and 3.25 per cent – a drop from between 4.5 and 5.5 per cent in the years before the financial crisis of 2009.