david dodge : adjusting to change remarks by mr david dodge, governor of the bank of canada, to the winnipeg chamber of commerce, winnipeg, manitoba, 15 june 2005. * * * good afternoon. i'm glad to be back in winnipeg. the last time i delivered a speech here was in january 2002. a lot has changed since then - in this city and in the canadian economy. at that time, our economy was recovering from a worldwide economic slowdown and from the impact of the september 2001 terrorist attacks in the united states. today, we face more - intense international competition, but we also face new opportunities, as expanding economies become important markets for our products. like the rest of canada, winnipeg and manitoba are feeling the impact of these international changes. change is the central theme of my remarks today. first, i will talk about some of the changes that have taken place at the bank of canada over its 70 - year history. then, i'll talk about some of the changes that are currently taking place in the global economy, as well as how we see our economy across canada and right here in manitoba - adjusting to these changes. changes at the bank of canada this year marks the 70th anniversary of the bank of canada. the bank opened its doors on 11 march 1935, at a time when the canadian economy was reeling from the effects of a prairie drought and a worldwide depression. in its early days, much of the bank's work was focused on trying to cushion the economy from the effects of high unemployment and falling prices, and replacing bank notes from different issuers with bank of canada notes. almost every aspect of the bank's work has changed since that time. but today i'll focus on the changes that have taken place in the conduct of monetary policy. by the late 1950s, the bank's monetary policy and the federal government's fiscal policy were trying to find a balance between controlling inflationary pressures in the economy and encouraging high levels of employment. the economic boom of the 1960s and the bitter inflationary experiences of the 1970s eventually led to an increased focus on price stability as the goal for monetary policy. we developed a better appreciation that keeping inflation low, stable, and predictable is the best contribution a central bank can make to the economic welfare of a nation. during those decades, we learned some key lessons. the first is that a floating exchange rate is a tremendous asset in helping an economy adjust to changes, particularly an economy as open as ours. a

will publish our monetary policy report update, which will contain our latest views on the canadian economy. the bank is in the process of gathering and analyzing the full set of information on the global and the canadian economies that will feed into our next interest rate decision, and into the update. on our last policy - announcement date in may, we decided to maintain the target for the overnight interest rate at 2 1 / 2 per cent. at that time, we indicated that global and canadian economic developments had been unfolding broadly in line with our expectations and that our outlook for the canadian economy through to the end of 2006 was unchanged from the one we presented in our april monetary policy report. the analysis contained in that report is still relevant. so is our statement that, in line with this outlook for growth and inflation, a reduction of monetary stimulus - that is, an increase in our key policy rate - will be required over time. now, let me say a few words about the economic prospects for manitoba. the provincial economy grew by an estimated 2. 3 per cent last year, up from 1. 5 per cent in 2003. like the rest of canada, manitoba will rely heavily on domestic spending as an engine of growth in 2005. private sector forecasters are expecting output growth of about 2. 7 per cent this year, largely as a result of strong consumption and investment. exports should also continue to grow, albeit at a slower pace than in 2004. this projection assumes that agricultural production will increase in 2005. it is too early to predict the impact of the recent floods that have ruined many fields in the province. diversification in manitoba's economy has been helpful. this province's economy is one of the most diversified in canada - with a good mix of goods - producing and service industries, resources and manufacturing, traditional and new technology. and there is growing diversity and innovation within industries, such as pharmaceuticals, furniture manufacturing, and the transportation - equipment sector. the broadening of manitoba's economic base has provided stability to the economy and has kept the province's unemployment rate well below the national average. manitoba has also been helped by continued fiscal prudence. conclusion change is rarely made without difficulty, even when we know that the change is for the better. this is certainly true of adjustments in response to the global economic realities of today. in some cases, industries are being forced to rethink the way they do business. some firms will close, and some jobs will be lost. this type