If the currency is not allowed to move, the adjustment will drag out and cost more in terms of losses in output and employment. However, the relatively orderly depreciation of our currency through to July 1998 accelerated following the Russian crisis last August. And Canadian longer-term interest rates rose sharply at a time when comparable US rates were falling.
To us at the Bank, this signalled a potential loss of confidence in Canadian dollar assets, which we moved to head off by raising the Bank Rate by 100 basis points. In so doing, we sought to limit the harmful effects of financial volatility on confidence by temporarily placing particular emphasis on calming markets. The situation has improved since then.