By Kim Mackrael

The Bank of Canada's extraordinary monetary policy during the pandemic is supporting the economic recovery and helping people return to work, but may also be contributing to an uneven distribution of wealth, the central bank's governor said Thursday.

In prepared remarks for a speech, Gov. Tiff Macklem said large-scale asset purchases, also known as quantitative easing, work by lowering borrowing costs and encouraging spending. That, in turn, supports job creation, he said, and the biggest contributor to reducing income inequality is making sure people have jobs.

At the same time, Mr. Macklem said low interest rates and quantitative easing can raise the value of assets like stocks, which some Canadians hold through their tax-sheltered retirement-savings plans or pension plans.

"Of course, these assets aren't distributed evenly across society," he said, according to the prepared remarks. "As a result, [quantitative easing] can widen wealth inequality."

Mr. Macklem said the central bank plans to look at the outcomes of its quantitative easing program, as well as similar programs in other countries, to better understand its impact on income and wealth inequality.

The Bank of Canada lowered its benchmark interest rate to near zero at the beginning of the pandemic, and has kept it at 0.25% for more than a year. It recently pulled back on its quantitative easing program and is now targeting weekly purchases of about 3 billion Canadian dollars ($2.47 billion) in Canadian government bonds, down from a previous level of at least C$4 billion.

The central bank has said it expects to keep the key interest rate at its current level until the economic slack is absorbed and its 2% inflation target is sustainably achieved. Based on its latest forecast, that could happen in the second half of 2022.

Mr. Macklem made the remarks about quantitative easing and wealth inequality as part of a speech that was focused on the importance of diversity and inclusion at the central bank and across the Canadian economy.

Write to Kim Mackrael at kim.mackrael@wsj.com

(END) Dow Jones Newswires

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