By 2014, we appeared to be within a year of returning “home”—by which I mean the point where the economy is running at full capacity, with supply and demand in balance and inflation at target. When the economy is truly home, it can grow sustainably without policy stimulus. Unfortunately, the economy hit a major setback late in 2014, when oil prices collapsed.
The Bank lowered its key policy interest rate twice in 2015, to a very stimulative level of 0.5 per cent, to help the economy work through the shock of lower oil prices. The government also introduced new fiscal stimulus. Over the next two to three years, the economy gradually made its way back home, absorbing excess capacity and seeing inflation return to target.