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Bank of Canada Governor Stephen Poloz, seen here on March 5, 2020, said in a speech to University of Western Ontario graduate students that the fast-growing severity of the situation sunk in personally for him when he attended a memorial service for an old friend on March 8 – and had first-hand experience with the rising concerns about physical distancing.

Chris Helgren/Reuters

Bank of Canada Governor Stephen Poloz said “life has been a blur” over the past two months, as he has steered the country’s central bank through perhaps the most difficult, hectic and complicated period in its history in response to COVID-19.

In the prepared text for a speech delivered in a private teleconference to graduate students at the Ivey Business School at the University of Western Ontario, Mr. Poloz called the crisis “exhausting.” The bank’s hectic activities since early March have included three interest-rate cuts totalling 1.5 percentage points, as well as a wide range of financial asset purchases that have provided emergency liquidity to markets and added $260-billion to the central bank’s balance sheet, roughly tripling its size.

“Let me just say that the work, the meetings, the video conferences, the phone calls were relentless,” Mr. Poloz said. “There were global meetings of groups like the G7, G20, BIS and International Monetary Fund, all at very early hours in our time zone; bilateral calls with other central bank heads; and domestic meetings – with the CEOs of the Big Six banks, pension fund CEOs, market regulators and other Ottawa officials. And of course, many meetings with my own team, adjusting our policies and other programs in real time.”

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He said the fast-growing severity of the situation sunk in personally for him when he attended a memorial service for an old friend on March 8 – and had first-hand experience with the rising concerns about physical distancing.

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“That was my last social activity, and we were afraid to shake hands or touch the food. I will always recall my dear friend Jim’s memorial service as the moment when the penny truly dropped.”

The speech at the London, Ont., school will likely be Mr. Poloz’s last before his seven-year term as head of the central bank expires on June 2. The government hasn’t yet named his successor, although the decision, which rests with Prime Minister Justin Trudeau and Finance Minister Bill Morneau, is believed to be in its final stages.

Mr. Poloz defended the aggressive financial market actions that the Bank of Canada has taken in recent weeks to defend against the risks of a seizing-up of credit – and the resulting expansion of the bank’s balance sheet that has raised concerns among some critics that the actions could stoke inflation.

“This of course would be inflationary in an economy that was functioning normally, but the whole point is that ours is not – given the forces acting on the economy, these actions are stabilizing, not inflationary,” Mr. Poloz said.

“If the central bank did not provide that liquidity, a credit crunch would ensue, and that would create a significant downdraft in the economy – in effect, a deflationary shock,” he said.

“Later, when the recovery begins and tensions ease, people will put their money back into financial assets or pay down their lines of credit. At that point, the process goes into reverse, and the central bank’s balance sheet can return to a more normal level.”

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Mr. Poloz also acknowledged that the bank’s decision not to publish specific economic forecasts in its mid-April monetary policy report was “a controversial decision,” but said the bank felt such numbers wouldn’t be helpful during a period of such extreme uncertainty.

“There was no shortage of forecast numbers out there. The situation seemed to be devolving into a contest for who was gutsy enough to forecast the biggest decline in economic activity. As the central bank, we don’t play that game,” Mr. Poloz said.

“We heard phrases like ‘bigger recession than the global financial crisis,’ ‘biggest recession since World War II’ and ‘biggest recession since the Great Depression.’ Such comparisons are unhelpful, for they use arithmetic to compare various events that had very different effects on people,” he said.

“A recession is a dynamic phenomenon: demand declines, firms lay off workers, confidence declines, people demand even less, more firms lay off workers. In other words, it is a negative dynamic that takes time and healing to reverse,” he said.

“At this point, there is no reason to assume that any of these behavioural dynamics will emerge from the current episode."

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