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Central bank shoots down Pallister's idea for borrowing

THE CANADIAN PRESS/Sean Kilpatrick</p><p>Bank of Canada Governor Stephen Poloz.</p>

THE CANADIAN PRESS/Sean Kilpatrick

Bank of Canada Governor Stephen Poloz.

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OTTAWA — Canada’s top banker and the Pallister government disagree on the best way to help provinces borrow money.

"I don’t really think the cost of financing is the issue, it’s the availability, given that markets are demanding liquidity," Bank of Canada governor Stephen Poloz told the Free Press on Friday.

On Thursday, Manitoba Premier Brian Pallister said he would ask the federal Liberals to establish an emergency credit agency, to extend loans to provinces at a cheaper interest rate than what they could access on their own.

The premier said the COVID-19 pandemic could cause Manitoba to borrow $5 billion to get through the fiscal year that begins April 1.

Poloz said Friday the central bank’s measures this week to buy provincial securities will likely be more effective at stabilizing provincial cashflows, compared with establishing a new agency. "The obvious advantage is that we can do it at the drop of a hat," he said.

The central bank started purchasing provincial treasury bills Wednesday at an issuing rate of 40 per cent, though it might change the rate based on market conditions.

THE CANADIAN PRESS/John Woods</p><p>Manitoba Premier Brian Pallister.</p>

THE CANADIAN PRESS/John Woods

Manitoba Premier Brian Pallister.

"We’ll keep doing it until conditions are normalized. (It’s) as simple as that. And (the) size is whatever market conditions demand," Poloz said.

The Pallister government had argued the measures are a good way to help out Canada’s banks, without doing much to support the provinces. The measure doesn’t provide liquidity, "and only applies to a very small volume of our total debt needs," a Manitoba spokeswoman wrote on Friday.

"The provinces are all unnecessarily competing with each other, chasing the few bond deals that are available."

The Manitoba government said a central agency could pass along savings so provinces could invest in health care and other responses to the novel coronavirus.

Poloz acknowledged provinces’ bond-market pressures, but responded by saying interest rates remain low.

Manitoba said that the province’s interest rate had risen in the past month.

Federal Finance Minister Bill Morneau said he’s in touch with his provincial counterparts weekly, to make sure the health systems have enough funding to respond to COVID-19.

"We know this challenge is placing pressures on provinces; we know that we need to work together on the health challenges, first and foremost, and make sure they’re resilient," Morneau said.

dylan.robertson@freepress.mb.ca 

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