Furthermore, there is the danger that the pendulum could swing too much in the direction of an excessively tight regulatory regime which could, in turn, stifle the recovery of the banks and their ability to lend, with adverse consequences for the broader economic recovery. South Africa did not have a banking crisis, thanks to prudent management and appropriate regulation and supervision.
But when it comes to assessing the pressures of aggregate demand on capacity - a key component of inflation dynamics - it is real GDP that matters. I would now like to turn to how Canada has fared in adjusting to the recent terms-of-trade shock.