to be well justified as total inflation fell back into line with core inflation. the ongoing effectiveness of monetary policy the bank's projection of an economic recovery reflects, in part, the monetary easing that we have already put in place – cutting the policy rate by 350 basis points since december 2007. guided by its forward - looking framework, the bank began cutting interest rates sooner – and has cut deeper – than most other central banks. with the usual lag, these moves will have a powerful impact on economic activity and inflation. nonetheless, some are questioning, with rates already so low and global credit markets strained, whether the bank's moves can still have an effect. we know from experience that inflation control works much more predictably when there are well - functioning financial markets operating within a sound and stable financial system. the canadian system has been under some strain since the onset of global difficulties, but it is important to keep those strains in perspective. it bears repeating that the canadian banking system does not face the same challenges as those in other major economies. canadian banks had modest exposures to the u. s. subprime market and other complex structured products. more importantly, our banks are better capitalized and substantially less leveraged than their international peers. in contrast to many international banks, which face enormous pressures to scale back their assets and liabilities to bring them into line with their capital, canadian banks have actually been raising private capital to grow their businesses. indeed, over the past year, they have raised over $ 15 billion in tier 1 capital from the private capital markets. consequently, canadian banks continue to lend. this is significant, because banks are a more important part of our financial system than in many other countries, and their relative strength means that total credit is continuing to grow in canada. that said, we expect this credit growth to slow in the coming months as result of declining demand during the recession. it is worth noting that our lower overnight rates have largely been passed through at shorter maturities. since the easing cycle began in december 2007, we have lowered the overnight rate by 350 basis points. the prime rate has fallen by 325 basis points, bankers acceptance rates ( key short - term financing instruments for corporations ) have fallen by about 380 basis points, and variable rate mortgages by about 185 basis points. at longer maturities, the declines have been more modest. in part, this reflects the typical pattern, as long - term rates tend to be less volatile than short - term rates over

growth across all canadian regions. canada is not the only economy that has coped better with recent shocks. to varying degrees, other countries have as well - which partly explains why world economic growth has held up better this time around. clearly, many national economies have been able to respond more flexibly than in the past to unexpected developments. and this has helped to mitigate the impact of shocks, advance the adjustment, and support continued strong economic performance. this increased flexibility has been the product of economic policies and structural reforms that many countries, including canada, have undertaken over the years to strengthen their economies and make them more resilient to shocks. but this does not mean that we have nothing to worry about as we look ahead. we live in an era of rapid change, and we operate in a global environment that is constantly shifting. uncertainty, risks, and shocks are a constant feature of the economic landscape. for canada, this is particularly relevant given how open our economy is to international trade and capital flows. at the bank of canada, we believe that world economic prospects remain favourable as we look out over the medium term. but while this reflects our central expectation of how the world will unfold, there are important upside and downside risks around this scenario. on the downside, persistent global imbalances immediately come to mind, as does the lack of success in the doha round of trade talks. these risks could result in significantly slower global economic growth. at the same time, we cannot rule out the possibility of stronger growth, especially in asia. of course, we know that events can turn out very differently from our expectations today. so we must plan accordingly. in terms of potential risks and sudden developments, the best approach is to constantly ask ourselves what steps we can take to make our economy and domestic markets more flexible and thus better able to adapt. and we need to recognize that the pursuit of such an approach is a shared responsibility among firms, workers, and policy - makers. firms and their workers need to be able to respond quickly to technological advances and to various shocks that require significant changes in the way they conduct business, the type of goods and services they produce, and the markets they choose to develop. a well - functioning market - based economy and clear relative price signals are critical in this context. at the same time, policy - makers need to be wary of barriers to adjustment, such as labour regulations that inhibit the movement of workers from one type of job, or from one sector