Bank of Canada lays out 'unconventional' options to boost economy

Having already dropped a key interest rate almost to zero, the Bank of Canada on Thursday laid out possible courses of actionto bolster the weak Canadian economy.

In its latest monetary policy report, the central bank did not offer any firm commitments, but said it could opt to pursue more "unconventional" routes, including quantitative easing and credit easing.

"If there were a need to do something else, which is a big if ... we would look to communicate that at our regularly scheduled fixed action date or fixed announcement dates because that's when we make monetary policy decisions or monetary policy announcements," Bank of Canada governor Mark Carney told reporters in Ottawa.

Carney added that the bank does reserve the right to pursue that path between scheduled rate announcements "in absolutely exceptional circumstances."

Quantitative easing would involve the bank buying upassets, such as government bondand private assets. That move wouldpush up the price of on those assets,and reduce the yields on them.

A plan for credit easing could see the central bank buying up private-sector debt in credit markets that are "temporarily impaired."

"The objective of credit easing is to reduce risk premiums, and improve liquidity and trading activity in these markets. This would, in turn, stimulate credit flows and aggregate demand," the bank said.

On Tuesday, the central bank cut the target for the overnight rate to 0.25 per cent, what it calls its lowest effective rate.

At the same time, the bank also offered its revised, weaker outlook for the economy.

The recession gripping the country will be longer than initially projected, with theeconomy expected to contract bythree per cent this year. The bank now expects the recovery to be delayed until the fourth quarter of 2009 and to be more gradual.

The economy is projected to grow by 2.5 per cent in 2010 and 4.7 per cent in 2011, and is not expected toreturn to its full production capacityuntil the third quarter of 2011.