Julie Gordon and David Ljunggren

OTTAWA (Reuters), -The Bank of Canada governor Tiff Macklem stated on Wednesday that Canada does not require more stimuli. Instead, it needs to receive more investment from the governments and businesses in building up its supply capacity to support strong consumer demand.

Macklem, when asked in an audience Q&A session if government should be spending billions to further stimulate the economy, said Canada is already in the midst of a consumer-led recovery, and more capacity investment is needed to sustain that.

He stated that investment is essential to sustain strong consumer-led recovery. We need to put more emphasis on the building of that supply capacity, regardless of whether it is businesses or governments.

He added that “Demand looks now self-sustaining.”

Canadian Prime Minister Justin Trudeau promised C$78 billion ($62billion) of new spending during his campaign for election last year to support Canada’s economic recovery.

Macklem stated earlier that Canadian businesses must implement business investment plans in order to avoid losing out on South American competitors.

Macklem stated that corporate balance sheets are robust, consumers demand is strong and U.S. export demand is growing. The U.S. has been increasing its demand for Canadian products since 1999. This is reflected in increased investment plans by firms.

He stated that it was crucial for Canadian companies to follow through with these plans, or they could lose out to U.S. counterparts. Investment is crucial to non-inflationary economic growth.

Canadian Dollar traded 0.3% higher at 1.2675 and greenback respectively, or 78.90 U.S. Cents.

Macklem reiterated the need to raise interest rates in an effort to reduce “too much” inflation. Last month, the central bank indicated that it will soon increase rates. It stated that there was no need for pandemic-level support.

Canada continues to experience slower productivity growth despite a stronger recovery in employment than in the United States. Macklem said that this is due in part to lower investment by businesses and more restrictions on public health.

The question here is: Does COVID-19 offer us an opportunity to alter our course? Macklem stated that he believes it does, noting the increase in remote work and digital investments caused by the pandemic.

According to the Bank of Canada, it will increase its overnight rate by 0.50% to March from a record-low 0.25%. Money markets are betting on six additional increases this year. [BOCWATCH]

($1 = 1.2669 Canadian dollars)