Guided by its forward-looking framework, the Bank began cutting interest rates sooner – and has cut deeper – than most other central banks. With the usual lag, these moves will have a powerful impact on economic activity and inflation. Nonetheless, some are questioning, with rates already so low and global credit markets strained, whether the Bank's moves can still have an effect.
We know from experience that inflation control works much more predictably when there are well-functioning financial markets operating within a sound and stable financial system. The Canadian system has been under some strain since the onset of global difficulties, but it is important to keep those strains in perspective.