. 3 % on average in both 2001 and 2002. the persistence of inflation above 2 % was mainly caused by increases in a number of volatile components of the hicp, in particular oil prices, and, in the second half of 2003, food prices. rises in indirect taxes and administrative prices also added to inflation in 2003. from a medium - term perspective, however, we expected price developments to remain in line with price stability after the progressive elimination of the influences of those volatile components of the hicp. this expectation resulting from our economic analysis was in line with our monetary analysis. much of the strength of monetary growth in early 2003 was due to the high level of economic and financial market uncertainty prevailing at that time, which prompted portfolio shifts into safer, short - term liquid assets included in m3. in the governing council ’ s assessment, the accumulation of excess liquidity was less of a concern for price stability as long as the economic recovery in the euro area remained gradual. in view of the moderation of medium - term inflationary pressures in the first half of 2003, the ecb ’ s key interest rates were reduced by 25 basis points in march 2003 and by 50 basis points in june of the same year. thus, in june 2003, the interest rate on the main refinancing operations reached the level of 2. 0 %. since then, this interest rate has remained unchanged at this historically very low level, whilst the preservation of inflationary expectations in line with our definition of price stability has contributed significantly to the very low level of medium and long term nominal and real interest rates. the resulting yield curve has delivered a financial environment which is lending very significant support to the economic recovery. turning now to more recent economic developments, the economic recovery which started in the second half of 2003 has continued in 2004. in terms of year - on - year growth rates, we reached 2 % in the second quarter of this year. quarterly growth rates since mid - 2003 have been in the order of 0. 4 % to 0. 7 %. by and large, output growth in the last 12 months was close to present estimates of the potential growth rate in the euro area. we expect a continuation of this growth trend in the coming quarters. on the external side, the world economy is, according to the imf, currently recording its strongest growth in 30 years. some moderation is expected next year, but euro area exports should nevertheless continue to benefit from favourable global demand conditions in 2005. on the

canadian pacific railway. the building of the cpr was years in the making and involved the hard work and sacrifices of thousands. it was a monumental undertaking – a feat of engineering and nation building. our speakers today have reminded us that our bank notes reflect the people and the society where they are used. canada is a world leader in using innovation for secure bank notes. work on this series started eight years ago, in 2005. it ’ s not that we work slowly at the bank of canada – that ’ s how long it takes to reach new frontiers in bank notes using a new polymer material and state - of - the - art security features. well over 700 million are now in circulation. with this series, the bank sets a global benchmark for currency. it ’ s a big change and we are working closely with the cash handling industry, including financial institutions and retail associations to finalize the transition from paper to polymer and make sure it is a smooth one. and though we are very proud of these bank notes, we are not standing still. bis central bankers ’ speeches that ’ s because neither technology nor counterfeiting stands still. you can be sure that at the bank of canada we will continue to innovate and apply new technologies so that we stay ahead of the counterfeiters. bis central bankers ’ speeches