In the MPR Update, the Bank said that we expect this to be a one-off movement in prices, but there is a possibility that there could be greater and more persistent downward pressure on prices than we assumed. The Bank also identified the downside risk that the tightening in credit conditions could be greater and more protracted than assumed.
As well, there could be a more prolonged slowdown in the U.S. economy, exerting a greater drag on Canadian GDP growth and inflation. These two risks are, of course, related. In line with our base-case projection and the associated risks, the Bank lowered the target for the overnight rate by one-quarter of one percentage point on 22 January.