Even though Canada did not experience a home-grown financial crisis, it is necessary for the Bank to understand better the lessons painfully learned elsewhere. As we have all been reminded at great cost, low, stable and predictable inflation and low variability in activity can breed complacency among financial market participants, as risktaking adapts to the perceived new equilibrium.
In saying that, of course, we cannot neglect the interests of those who live off the return from their savings and who rightly expect us to preserve the real value of those savings. Popular discussion of interest rates routinely ignores this element, focusing almost exclusively on the minority of the population – just over one-third – who occupy a dwelling they have mortgaged.