Search

The Canadian financial system comprises financial markets, financial institutions, and the clearing and settlement systems.

The events of the past few weeks in global financial markets have been dramatic. Money and credit markets seized up. There was a massive flight to the safety of the highest quality of government debt.

The Report provides our latest assessment of the outlook for economic growth and inflation in Canada. Before I give you a flavour of that assessment, I would like to say a word about the objective of Canadian monetary policy and how we go about achieving it.

Public sector institutions have been undergoing significant changes over the past decade. One of the most important changes has been the move to greater accountability. Public institutions are now required to be more open and to provide more information about their operations. Or, to use the word currently in vogue, to be more “transparent.”

Today, I want to focus my remarks on Canada's adjustment to changes in the global economy. I will talk about our efforts to adjust to longer-term economic forces and about the challenges that these forces present. Some of our experiences may be relevant to other economies that are making similar adjustments in the face of similar economic circumstances.

The winter Business Outlook Survey provides some positive signs for the economic outlook, notably for exports and investment, although responses do not yet appear to suggest a significant strengthening. For many businesses, weak demand and domestic uncertainty continue to temper sales expectations and expansion plans.

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

Taken together, responses to the spring survey indicate that, following a recent slowing in economic activity, firms expect business conditions to remain challenging over the next 12 months.

Businesses remain positive about the economic outlook but less so than in the autumn survey. The appreciation of the Canadian dollar between the survey periods has heightened uncertainty among businesses and dampened the expectations of those adversely affected by the rising dollar.

Supplemental questions on the appreciation of the Canadian dollar - Winter 2004-05

While inflation has come off its peak, it remains too high. As the economy responds to higher interest rates and as the effects of elevated commodity prices and supply disruptions fade, the Bank expects inflation to fall to about 3% in late 2023, then return to 2% in 2024.