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, 30 october 2019. * * * 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 ). before turning to your questions, let me first offer some insight into governing council ’ s deliberations. not surprisingly, the worsening global situation was the primary issue. economic forecasts have been marked down further in most countries, largely as a consequence of the escalation of trade actions and uncertainty around what may be next. heightened uncertainty about future trade policies is directly reducing business investment, and there is a risk that this will spread to households as well. these consequences can be buffered through easier monetary policy, and many central banks have recently eased in response. however, we need to remember that tariffs and trade restrictions will work over time to permanently reduce potential output everywhere, while raising the prices of consumer goods — a stagflationary scenario. monetary policy can only do so much about these elements of the shock. canada is not immune to these global developments. in fact, canada was one of the first countries to feel the effects of trade policy uncertainty, since nafta was the first target of the trump administration. indeed, this uncertainty has been weighing on investment in canada for the past three years. these were important headwinds preventing canadian interest rates from rising by as much as us rates did during 2017 – 18. nevertheless, as other economies feel a growing impact from the trade war, there are second - round impacts on canada through weaker exports and lower commodity prices. in today ’ s updated projections, we are forecasting both exports and business investment to contract in the second half of this year and to recover only moderately in the next two years. we can see a wide range of indicators pointing to these effects — in manufacturing, mining and rail transportation — in our business outlook survey and in the quarterly reports of bellwether global companies. while we have had these secondary effects in our forecast for some time, and increased them in our latest projection, these are mostly judgment - based, and the situation could worsen. accordingly, we present a deeper analysis of this downside risk in today ’ s mpr, in box 3. let me just note

and central bank autonomy 22. the much prized autonomy of central banks has come under assault post - crisis with an influential view gaining ground that one of the principal causes of the crisis was the unbridled autonomy of central banks. the standard argument for central bank autonomy is that autonomy enhances the credibility of the central bank ’ s inflation management credentials. monetary policy typically acts with a lag, and price stability therefore has to be viewed in a medium term perspective. having autonomy frees the central bank from the pressure of responding to short - term developments, deviating from its inflation target and thereby compromising its medium term inflation goals. even as the importance of central bank autonomy in monetary policy is now broadly accepted, there is a growing view that central bank decision making has to become transparent and that central bankers have to be more accountable for the outcomes of their decisions. 23. with central banks assuming increasing responsibility for financial stability, the autonomy question has acquired an additional dimension and greater urgency. the main apprehension is that a formalized mechanism for coordination between the government and the central bank for financial stability will alter the level, content, process and frequency of interaction between the two, and over time this will erode the autonomy of the central bank. it is argued that it will be difficult to keep monetary policy and policies for financial stability strictly apart, and a formal forum for coordination would facilitate “ spillover ” into monetary policy. bis central bankers ’ speeches 24. this issue is non - trivial, and can become quite contentious in maturing economies where institutions for checks and balances are not ingrained. nevertheless, it is not an insurmountable problem. it is possible to build and respect chinese walls between decision making for monetary policy and decision making for financial stability. in the us for example, the fomc ( federal open markets committee ) is responsible for monetary policy decisions while the board of governors of the federal reserve is responsible for financial stability decisions. countries like brazil and sweden have a different model – they aim at extracting synergies between monetary and financial stability decisions through a single board. 25. the burden of my argument therefore is that with sensitivity and understanding on both sides and through appropriate institutional mechanisms, it is possible to ensure that a central bank is able to effectively discharge its financial stability responsibility without compromising its autonomy. indian position on the issue of financial stability 26. where do we in india stand on this issue of financial stability? historically, the reserve bank has played an important role in