, central banks can charge negative rates on commercial bank deposits without seeing a surge in demand for bank notes. last month, the bank published a staff discussion paper that analyzes those costs and the convenience benefits of electronic payments, and reflects on the experience of other countries. we now believe that the effective lower bound for canada ’ s policy rate is around minus 0. 5 bis central bankers ’ speeches per cent, but it could be a little higher or lower. this suggests that we have more room to manoeuvre in response to adverse shocks than we believed back in 2009. we will continue to watch the experience of other countries – the swiss policy rate, for example, is currently minus 0. 75 per cent – and we will also consider what adjustments might need to be made to the bank ’ s operational framework should they ever be required. to sum up, once interest rates reach very low levels, the central bank still has meaningful tools that it can deploy in its pursuit of its inflation target : offering forward guidance to financial markets to enhance policy effectiveness, large - scale asset purchases, funding for credit, and pushing short - term interest rates below zero. what else have we learned? there are a few other lessons we ’ ve learned about unconventional monetary policies in the past few years. let me just touch on a couple. one lesson concerns when to use which tool. when we published our unconventional policy framework in 2009, there was an implied sequence to the various measures. forward guidance was tried first, with quantitative easing and other measures held in reserve in case forward guidance proved to be insufficient. but what we ’ ve learned since is that there shouldn ’ t be a pre - determined order. the effectiveness of each tool will depend on the situation, making it more a matter of choosing the right one at the right time. furthermore, the various measures can be mutually reinforcing when used in combination, so it makes little sense to commit to a particular sequence for using them. another lesson we ’ ve learned from the global experience is that while unconventional monetary policies can help stimulate the economy, there may be limits to their impact. take negative interest rates, for instance. while we now believe that interest rates can be pushed below zero, there still is a lower bound, so we can ’ t be cavalier about how much more room to manoeuvre we have. further, there is evidence that consumers and businesses respond less to interest rate declines when interest rates are already very low. and there is evidence that

5 per cent, from the fourth quarter of this year to the end of the second quarter of next year. following that, total inflation should remain near 2 per cent until the end of 2008. now let me say a few words about the risks to our projection. the risks, both on the upside and the downside, appear to be a little bit greater than they were earlier this year. the main risk on the upside continues to relate to the momentum in household spending and housing prices. household income continues to grow, consumer credit growth is currently quite high, and house prices have been rising sharply. these three factors could lead to higher consumption than we expect, which would put upward pressure on inflation. in addition, the strong growth in prices and wages now seen in western canada could also spread to other regions. on the downside, the main risk is that the u. s. slowdown could be deeper and last longer than we expect. this would imply lower demand for canadian exports and broader weakness across our economy. the bank judges that these risks to its inflation forecast are roughly balanced. and the current level of the target for the overnight rate is judged, at this time, to be consistent with achieving the inflation target over the medium term. implications for ontario having laid out the bank's projections, i will now look at the implications for ontario's economy. there are really two sets of issues here. the first relates to the implications of the short - term cyclical downturn. the second relates to the longer - term structural challenges facing ontario. let me address these in turn. it is clear that the cyclical pullback in the u. s. housing and auto sectors is causing particular difficulties for ontario. given the degree of integration of the ontario and u. s. economies, this province will feel a significant impact from the u. s. downturn throughout the second half of this year and the first half of 2007. when you consider that automotive products made up 44 per cent of ontario's merchandise exports last year, it is clear that the u. s. downturn will likely affect ontario more severely than other provinces. related manufacturing industries could also continue to face serious challenges. but i remind you that roughly 70 per cent of ontario's economic activity comes from the service sector, and that sector remains in good shape. overall, ontario may well underperform the canadian average for the balance of this year and in 2007. nevertheless, modest growth in ontario's economy