The limited ability to cut interest rates could provide less ability to buffer the economy in a downturn, while the very flat Phillips curve could make it harder to boost inflation during an expansion. And that could further compress policy space in a negative spiral.
The data suggest that material slack remains in the Canadian labour market, in contrast with the US labour market, which is close to full employment. At the same time, Canadian exports and business spending are still weaker than you would expect to see at this stage of the business cycle.