pressures that would otherwise require stronger doses of interest - rate medicine. of course, it is possible for exchange rates to overreact, even in the benign environment i described a moment ago. but the chances of a serious misalignment are much lower when markets are operating in a climate of greater predictability, provided by a monetary policy grounded in domestic price stability. when exchange rates are not anchored by a credible commitment to price stability, it is difficult, if not impossible, for markets to perform the tasks that are expected of them. the operation of the flexible exchange rate system in canada as you know, canada has been one of the strongest proponents of a flexible exchange rate system. we were the only major industrial country to operate under such a system in the 1950s and early 1960s, and we were the first major country to adopt it again in the 1970s. as a medium - sized open economy that relies on exports of primary commodities more than our principal trading partners, we are vulnerable to external shocks and appreciate the ” shock absorber ” effect provided by a flexible exchange rate. let me tell you briefly how the canadian economy has performed under the flexible exchange rate system and describe the main forces that have been acting on our exchange rate. the most significant trend movement occurred over the 1976 to 1986 period, when the canadian dollar experienced a large depreciation vis - a - vis the u. s. dollar, falling from roughly parity to a low of 69 cents ( u. s. ) in february 1986. during this time, annual inflation rates in canada exceeded those in the united states by about one per cent, on average. while on a yearly basis this may not sound like much, cumulatively the differential was rather significant and can explain most of the trend depreciation in the canada - u. s. exchange rate over this period. as for the cyclical swings that accompanied the trend depreciation of the canadian dollar, they reflected a number of factors. among these, the most significant has been the variability in the world prices of primary commodities, which remain an important component of our exports. but the most worrisome factor during the 1980s and 1990s was the growth of the fiscal deficit and the destabilizing effect that this had on financial markets, including the foreign exchange market. rising public debts and deficits contributed importantly to the risk premiums in interest rates on canadian dollar assets and were the catalyst, if not the cause, of unsettling episodes in 1986, 1992,

tiff macklem : release of the monetary policy report opening statement by mr tiff macklem, governor of the bank of canada, at the press conference following the monetary policy decision, ottawa, ontario, 5 june 2024. * * * good morning. i'm pleased to be here with senior deputy governor carolyn rogers to discuss today's policy announcement. governing council decided monetary policy no longer needs to be as restrictive and lowered the policy interest rate by 25 basis points to 4. 75 %. we've come a long way in the fight against inflation. and our confidence that inflation will continue to move closer to the 2 % target has increased over recent months. the considerable progress we've made to restore price stability is welcome news for canadians. since our monetary policy report in april, underlying inflation has continued to ease and economic growth has resumed. with the economy in excess supply, there is room for growth even as inflation continues to recede. let me provide a little more detail about these dynamics. after stalling in the second half of last year, economic growth picked up in the first quarter of this year. at 1. 7 %, growth was lower than projected in the april report. but consumption growth was solid at about 3 %, and business investment and housing activity also increased. in the labour market, businesses are continuing to hire workers. employment has been growing, but at a slower pace than the working - age population. this has allowed the supply of workers to catch up with job vacancies. elevated wage pressures look to be moderating gradually. inflation remains above the 2 % target and shelter price inflation is high. but total consumer price index ( cpi ) inflation has declined consistently over the course of this year, and indicators of underlying inflation increasingly point to a sustained easing. i'll highlight four indicators in particular : cpi inflation has eased from 3. 4 % in december to 2. 7 % in april our preferred measures of core inflation have come down from about 3½ % last december to about 2¾ % in april the 3 - month rates of core inflation slowed from about 3½ % in december to under 2 % in march and april the proportion of cpi components increasing faster than 3 % is now close to its historical average, suggesting price increases are no longer unusually broadbased this all means restrictive monetary policy is working to relieve price pressures. and with further and more sustained evidence underlying inflation is easing, monetary policy no 1 / 2 bis - central bankers'speeches