In order to exit such an environment, it is vital to dispel the deflationary expectations embedded in the people. To address the challenge of overcoming deflation, the Bank introduced the QQE in April.
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.