stephen s poloz : release of the monetary policy report opening statement by mr stephen s poloz, governor of the bank of canada, at the press conference following the release of the monetary policy report, ottawa, ontario, 25 october 2017. * * * good morning. senior deputy governor wilkins and i are pleased to be here to answer your questions about today ’ s interest rate announcement and our monetary policy report ( mpr ). as you know, governing council decided to raise interest rates at each of its july and september meetings, in the context of stronger - than - expected economic growth and a very strong labour market. furthermore, over the course of the summer, we saw a firming of inflation indicators and a rapidly closing output gap. as we predicted in july, the economy is showing signs of moderating in the second half of the year. nevertheless, we expect the economy to continue to grow at an above - potential pace. today, we left our policy rate unchanged at 1 per cent. we regard this level as appropriate in light of our updated projection for the economy and inflation — in particular, we expect inflation to reach our 2 per cent target in the second half of 2018. this is a little later than we projected in july, primarily because the canadian dollar has strengthened in 2017. before taking your questions, let me offer a few comments around governing council ’ s deliberations. governing council agreed that the economy is likely to require less monetary stimulus over time, but we will be cautious in making future adjustments to our policy rate. four key issues are adding uncertainty to the projection. these are the same four issues that i highlighted in my recent speech in st. john ’ s, and they played an important role in our deliberations for today ’ s decision. discussion of these issues features strongly in today ’ s mpr. the first issue on which governing council spent considerable time is around inflation itself. in this mpr, we investigate a number of conjectures around the apparent softness of inflation in several advanced economies. i refer you to box 1 of the mpr. these conjectures include a role for technology, specifically digitalization, which may be putting downward pressure on inflation ; a role for imported disinflation from lower - cost countries ; or more generally, a role for the forces of globalization. suffice to say that for the canadian data, this work has generally confirmed our faith in our model of inflation, in which inflation depends mainly on the degree of excess

important theme of this conference. under the payment clearing and settlement act, the bank of canada has responsibility for the prudential oversight of systemically important financial market infrastructures. international monetary fund, “ canada : financial sector stability assessment ”, country report no. 14 / 29, february 2014. the four pension funds are : cppi investment board, ontario teachers ’ pension plan, psp investments, and omers ( the economist, 3 march 2012 ). www. economist. com / node / 21548970. bis central bankers ’ speeches third, i will examine how the g - 20 - sponsored global financial reforms will improve stability by strengthening the resilience of the global financial system. and i ’ ll comment on the implications of these reforms for pension funds. just to be clear, the reforms are not targeted at pension funds, which were a source of resilience during the crisis. rather, they address the serious fault lines exposed by the crisis. all financial sectors, including pension funds, stand to benefit from the reforms, which will reduce the likelihood and adverse impact of future crises. financial stability : its importance to pension funds why is financial stability important for pension funds? to answer this question, let ’ s start by defining what we mean by financial stability in this context. it is important to recognize that volatility does not necessarily imply financial instability. asset prices in well - functioning markets typically exhibit some degree of volatility because they reflect the arrival of new information and a diversity of opinion. generally, such diversity and volatility are positive because they are consistent with liquid and efficient markets. but there are instances – in 2008, for example – when volatility spiked because market liquidity had dried up. in such circumstances, the financial system cannot perform its critical intermediation function, resulting in adverse effects on real economic activity. hence, the bank defines financial stability as the resilience of the financial system to unanticipated adverse shocks to enable the continued functioning of the financial intermediation process. 4 given this intuitive definition of financial stability, it is clear that financial system instability can undermine the fundamental objectives of pension funds. without financial stability, it would be difficult for sponsors to develop and confidently fulfill a pension promise. pricing in a well - functioning market is critical to assessing and managing risk with confidence. to understand why, let me give you a macroeconomic perspective of the recent financial crisis. the financial crisis had pervasive adverse financial and economic