In a monetary union, public sector borrowers can, for a time, hide some of the economic disadvantages resulting from an unsound fiscal policy under the blanket of monetary union or lessen the impact of market responses to such a policy by distributing them across the monetary union.
We view the risks around our forecast for inflation to be reasonably balanced. But with inflation so far above our target, we are particularly concerned about the upside risks. We are mindful that adjusting to higher interest rates is difficult for many Canadians. Many households have significant debt loads, and higher interest rates add to their burden.