Price stability does not ensure financial stability, and the costs of cleaning up after a financial crisis are very high. Asset price bubbles potentially could be more risky than thought earlier, but direct monetary policy response may still have to be avoided. Macroprudential tools may be more suitable for that.
The economy is now operating near its production capacity and continues to adjust to global economic developments. The Bank’s base-case projection for the period to the end of 2006 calls for aggregate demand for Canadian goods and services to expand, on average, at about the same rate as potential output.