cpi inflation would likely fall below core inflation in 2004. however, there are significant risks to this economic outlook. these risks relate to the timing and magnitude of global demand, price, and exchange rate adjustments to economic imbalances. in particular, there is uncertainty both about the likely changes in key global exchange rates and their effect on the canadian economy. there is also uncertainty about the sustainability of u. s. growth beyond mid - 2004. we continue to assess the implications of all these developments - both past and future - for output and inflation in canada, and what this means for monetary policy.

oversight of the financial system did not fall between the gaps in the new institutional structure of supervision. since then other central banks have followed the bank of england ’ s lead. financial stability units – small teams with backgrounds in economics and banking supervision whose job it is to monitor wider trends in the financial system – are now increasingly a feature of the organisational charts of many central banks. these factors have led to a redefinition in the way in which central banks have begun to approach their traditional macro prudential remit. i would like to mention four of these in particular : • the formalisation of payments and settlement system oversight ; • the publication of financial stability reports ; • stress testing and scenario analysis ; and • concern with financial condition of non - bank financial intermediaries and health of corporate and household balance sheets. let me now briefly talk about each of these in turn. payment system oversight has been part of the core functions of central banks almost from the very beginning. however, once the formal responsibility for banking supervision was split away from central banks like the bank of england and the reserve bank of australia, these central banks began to formalise their role in payment system oversight. in australia, for example, the 1998 payment systems ( regulation ) act gives the rba powers to regulate the payments system and purchased payment facilities ( such as travellers ’ cheques and stored value cards ). it also allows the rba to obtain information from payment system participants and to set access regimes and determine risk control and efficiency standards for designated payment systems. the rba ’ s responsibilities in this regard are discharged by a payments system board. the adoption of real time gross settlement ( rtgs ) has been another key risk reduction initiative on the part of many central banks in the past decade and a half. these systems eliminate the build up of settlement exposure and herstatt risk between financial institutions as a result of the exchange of high - value payments and debt securities settlements. instead, individual transactions are settled in real time across accounts at the central bank. the availability of rtgs is also an important step in dealing effectively with foreign exchange settlement risk. finally, no discussion of payments system oversight would be complete without some mention of antimoney laundering initiatives. aml is important for the integrity of payments systems, and thus also has important macroprudential implications. the publication of a financial stability report is the second way in which central banks have given more prominence to their macro prudential responsibilities. the bank of england