- looking framework of inflation targeting acts as an automatic stabilizer for the economy. let me explain how that works. when demand is too strong, pushing the economy against its capacity limits, and there is a risk that future inflation will move appreciably above the target midpoint, the bank will raise interest rates to cool off the economy. but this works also in the other direction. when demand is weak, and future inflationary pressures are likely to ease, as was the case in 2001, the bank will lower interest rates to stimulate the economy, absorb economic slack, and return inflation to the target midpoint. let me stress here that the midpoint of our inflation target range is a target, not a cap. that is to say, we pay equal attention to any significant movement away from the 2 per cent midpoint - whether above or below. by working in a symmetrical way in response to surprises in demand, our inflation - targeting system helps to smooth the peaks and valleys of the business cycle and to promote sound, and generally less variable, economic growth. in this connection, let me emphasize that our mandate, as expressed in the preamble to the bank of canada act, is not dissimilar from that of the u. s. federal reserve or from those of many other central banks. our act enjoins the bank “ to mitigate by its influence fluctuations in the general level of production, trade, prices and employment, so far as may be possible within the scope of monetary action, and generally to promote the economic and financial welfare of canada ”. the symmetry of monetary action that goes with our inflation - targeting framework is the best way to achieve inflation control and thus the objectives of the act with respect to output and employment. in addition, a monetary policy that consistently delivers low, stable, and predictable inflation is likely to provide the greatest contribution to sustained growth in output and employment. this brings me to a key point i noted earlier. it is vital that the central bank communicate with the public and with financial markets on the goals of monetary policy. here too, inflation targeting can play an important role - both in making monetary policy actions more understandable and transparent, and in making it possible for an independent central bank to be held accountable by the public. it can also provide financial markets with a clearer view of how the central bank will operate over time. finally, let us not forget that monetary policy actions affect inflation with a lag of six to eight quarters.

economies, affecting spending on housing and related goods and services. there would be some spillovers to other regions and sectors of the economy. bank balance sheets would also be affected in this scenario, leading to tighter lending standards. the likelihood of this second scenario occurring is greater than the first. however, its impact would be less severe, and we don ’ t anticipate that a house price correction would trigger the widespread rise in unemployment assumed in the first scenario. given recent events, some people might naturally wonder if there is a connection between the two vulnerabilities we ’ ve described and the situation at home capital. while we don ’ t generally discuss individual financial institutions, i can say our assessment is that the situation reflected firm - specific factors. the regulatory and supervisory system worked as it is designed to do, and we are not seeing signs of broader stress. indeed, those recent events were a pretty clear indication of the resilience of canada ’ s financial system as a whole. let me close by pointing out that the fsr includes a section that describes how we measure the resilience of the canadian financial system. it shows that capital, leverage and liquidity ratios in the canadian financial system are all well above regulatory minimums and have improved over the past year. we are seeing early signs of a recovery in business investment. the process of adjustment to the oil price shock is mostly behind us, having been facilitated by the monetary policy actions we took in 2015. this improving economic backdrop will add to the resilience of canada ’ s financial system. and as such, we decided to drop the risk of prolonged weakness in commodity prices from our risk assessment. with that, senior deputy governor wilkins and i are happy to respond to your questions. 2 / 2 bis central bankers'speeches