This morning, we released our Update to last November's Monetary Policy Report. In that Report, we indicated that, in the wake of the 11 September events, the timing and extent of a rebound in economic activity in Canada this year would depend crucially on geopolitical developments and on how soon consumer and business confidence returned to normal.

Depuis, la conjoncture géopolitique s'est améliorée, et la confiance des consommateurs s'est redressée tant au Canada qu'aux États-Unis. Par conséquent, bien qu'une croissance robuste ne soit pas encore engagée, il est maintenant plus clair que notre économie gagnera en vigueur à mesure que l'année avancera.

Economic developments in Canada since the November Report, and the profile for growth outlined in the Update, suggest that the amount of slack in the economy through 2002 will likely be somewhat greater than assumed in November. Thus, core inflation is now seen averaging just under 1 ½ per cent in the second half of 2002. Total CPI inflation should remain below the core rate until late 2002.

Dans ce contexte, la Banque a abaissé son taux directeur de 375 points de base au cours des douze derniers mois. Cet assouplissement monétaire substantiel devrait soutenir la croissance de la demande intérieure. La croissance économique devrait donc s'accélérer au cours de 2002. Les capacités de production excédentaires devraient se résorber graduellement. En conséquence, l'inflation devrait remonter aux alentours de 2 % d'ici deux ans environ.

I would now like to say a few words about recent exchange rate developments that are a source of concern.

Over time, exchange rates should reflect underlying economic and financial developments and prospects. But in the short run, there can be volatility as markets gauge those prospects.

As I have already noted, it is becoming clearer that our economy will strengthen as we go through this year and into 2003. Recent data increasingly support the view that a recovery is taking hold. Household spending in Canada, particularly on interest-sensitive purchases, has been stronger than expected. The latest data on exports and manufacturing activity show signs of recovery. The inventory adjustment is progressing. And with early evidence of a revival in the U.S. economy, the world prices of non-energy commodities appear to have bottomed out.

These signs of a pickup in economic activity in Canada are encouraging. But the recent movements in the Canada–U.S. exchange rate do not appear to have reflected those developments and this recent depreciation has not been helpful for the economy. Economic recovery in Canada does not hinge on the current low levels of the Canadian dollar against its U.S. counterpart.

Ces signes d'un regain de l'activité au Canada sont encourageants. Toutefois, les variations récentes du taux de change Canada–États-Unis ne semblent pas avoir reflété cette évolution et elles n'ont pas aidé l'économie. La reprise au Canada ne dépend pas du maintien des bas niveaux actuels du dollar canadien par rapport à la devise américaine.

Let me sum up. When the final data come out, we could very well see positive, albeit modest, economic growth in both the fourth quarter of 2001 and the first quarter of 2002. Economic activity should gain momentum as the year progresses. Of course, some uncertainties remain, and the Bank will stay alert to unfolding developments.