Today, we released our Update to the April Monetary Policy Report. The Update reviews economic and financial trends in the context of Canada's inflation-control strategy.

Since the April Monetary Policy Report, a number of unanticipated developments have changed the outlook for economic activity and inflation in Canada.

Economic activity has been undercut by the effects of severe acute respiratory syndrome (SARS) and an isolated case of bovine spongiform encephalopathy (BSE) in Canada. Foreign demand for Canadian products has also been weaker than expected. Moreover, the substantial rise in the value of the Canadian dollar against the U.S. dollar will have a dampening effect on the future growth of demand for Canadian goods and services.

Inflation, and importantly, inflation expectations, have eased. And more slack is developing in the economy than was previously expected. It now appears that, by the end of this year, core inflation will fall below the 2 per cent target.

In response to these changing circumstances, we left the target for the overnight rate unchanged on 3 June, seeing less need to reduce the amount of monetary stimulus in the economy. On 15 July, we lowered our target for the overnight rate by 25 basis points to 3 per cent. This change in policy stance should help support domestic demand growth and maintain demand levels that are consistent with keeping inflation near 2 per cent over the medium term.

We expect that growth in Canada's economy will strengthen towards the end of 2003 and through 2004. Here are the factors supporting this outlook:

  • the unwinding of the adverse effects of SARS and BSE;
  • the expected rebound of the U.S. economy;
  • the much-improved tone in capital markets; and
  • the underlying strength of Canadian domestic demand.

We will closely monitor the strength of domestic and external demand with a view to keeping inflation on track to meet the 2 per cent target.

Paul and I will now be happy to take your questions.