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Mark Carney ,Governor of the Bank of Canada.

OTTAWA -- The Bank of Canada indicated Thursday in its latest monetary policy report that it is prepared to use alternative monetary policy tools should inflation continue to decelerate in the midst of an uncertain economic outlook -- but provided limited guidance as to how it would be deployed and when such actions would be triggered.

The central bank suggested in its latest economic update it would be closely monitoring credit conditions and core inflation, which is expected to drift downward to a low of 0.9% in the fourth quarter due to excess supply, and declining food and housing prices.

Most of the anticipation, however, leading up to the central bank's quarterly economic outlook was over its planned foray into so-called quantitative easing, in which financial markets are flooded with cash through the acquisition of securities. The dual goal is to lower longer-term borrowing costs and boost credit availability.

In the leadup to Thursday's framework unveiling, the central bank moved its key lending rate down to 0.25%, narrowed the operating band to encourage market players to lend cash as opposed to hoard it, and committed to maintain $3-billion in excess cash in the system on a daily basis to bring down borrowing costs.

Those looking for specific details on future quantitative-easing measures are bound to be disappointed. In recent weeks, Mark Carney, the Bank of Canada governor, had tried to play down market expectations on the central bank's move toward unconventional measures.

With its key-lending rate as low as it can go, it said would undertake one of three additional measures if necessary:

• Issue conditional statements about the future path of interest rates, much like it did this week when it said the 0.25% policy rate would stay at that level until at least July of 2010.

• Outright purchases of financial assets with the aim of driving up prices and pulling down yields. Such a move would expand the central bank's balance sheet.

• And the acquisition of private-sector securities in certain credit markets, which it dubs "credit easing." However, the central bank said it would finance these acquisitions by selling off other assets -- not by increasing the money supply.

"The bank would undertake transactions in the amounts and types that will have the desired effect in the supporting aggregate demand and achieving the [2%] inflation target," the report said, in describing the "principles" that would guide the bank's behaviour.

Bank officials told reporters it was "not possible" to outline how much quantitative easing would occur, or when. There were also no specifics as to what securities the central bank would target in a quantitative-easing foray.

Instead, the central bank said it would target assets "concentrated" in a maturity range that would have the biggest impact on the economy. Moreover, it would aim to assure "neutrality," so that one market or one security is not preferred over others; and that it act with "prudence," to ensure the central bank takes into account the "quality" of the assets.

There was also no indication of how much money would be dedicated to these measures.

Decisions to proceed on any or all of these fronts would be communicated at its fixed-date interest-rate decisions, with the next one scheduled for June 4, and would be done after speaking with the Department of Finance.

"The bank would co-ordinate with the federal government to ensure that, together, measures taken to ease credit conditions and to stimulate the economy will achieve the best outcome."

As it happens, the federal government is set to roll out a $12-billion initiative aimed at reviving the auto- and equipment-leasing market, through the acquisition of asset-backed securities.

Prior to the release of the framework, analysts were of the opinion that a move into some form of quantitative easing would be required.

In a note released Wednesday, Eric Lascelles, chief economist and rates strategist at TD Securities, said there was a 60% chance that quantitative easing would be deployed -- although perhaps not immediately.

"The Bank of Canada probably hopes to get a free ride in the beginning, much as the Fed did, as the simple announcement could help many markets rally for a spell, even before the first dollar is spent," he said.