Economic growth has slowed down over the last two years and inflation remained above the tolerable level, though there has been significant moderation in the first month of the current financial year, 2013–14. These developments have had an impact on banking.
These lower rates reflect Canada’s lower inflation rate, and the expectation that low inflation will continue. In the past, a depreciation of our currency has frequently fed fears of inflation and has led to interest rate increases. The difficulties of the past couple of years also illustrate the value of a flexible exchange rate as a shock absorber.