the labour market, recent data have been mixed. while job growth has certainly been firm, both wages and unit labour costs have grown only slowly. the data suggest that material slack remains in the canadian labour market, in contrast with the us labour market, which is close to full employment. at the same time, canadian exports and business spending are still weaker than you would expect to see at this stage of the business cycle. companies are telling us that while they plan to raise spending, the planned increases are modest, or tied to maintenance, rather than expansion. in short, the economy is not yet firing on all cylinders. in addition, canadian companies are dealing with heightened levels of uncertainty related to us tax and trade policies. we still do not know what tax changes are coming, or when. and the range of potential trade measures under discussion is even wider now than it was in january. it includes a border - adjustment tax, increased tariffs aimed at specific industries or countries, nontariff barriers and even broader, multilateral measures. we do not know which of these will be enacted ; their timing is uncertain ; and each would affect the global and canadian economies 1 / 2 bis central bankers'speeches through a different, complex set of channels. with all of this uncertainty, we cannot reliably model the impact of changes to us trade policy. instead, we have built in an extra degree of caution in our forecast for exports and investment relative to our january projection. total inflation has been close to 2 per cent and is expected to dip to about 1. 7 per cent in the middle of the year before returning to near its target. however, our core inflation measures are all in the lower half of the target band and have been trending downward. this supports the view that the economy continues to have significant excess capacity. our current base - case forecast calls for the canadian economy to absorb its excess capacity sometime in the first half of 2018, which is a bit sooner than we projected three months ago. we are certainly happy to see the recent strength in the economic data and want to see more of it in order to be confident that growth is on a solid footing. we judge that the economy still has material room to grow. and we remain mindful that significant uncertainty continues to weigh on the outlook. given all of this, we judged that the current stance of monetary policy is still appropriate and maintained the target for the overnight rate at 1 / 2 per cent. with that, mr. chairman, senior

portfolios, they are also vulnerable to the same external shocks. the banking system as a whole becomes vulnerable. the assumption that banks are intertwined and alike can lead to problems spreading between banks through expectations alone. if depositors see problems in one bank, they will run to their own bank and withdraw their funds before it is too late. paradoxically, banks become more alike when they apply the same diversification strategies. the savings banks i mentioned may have become more alike if they are using the same risk management systems. that banks become more similar may also be a sought - after result on the part of banks. they may want to move in herd. when many banks encounter problems at the same time, history shows that the authorities have little recourse other than to help them. in that case, being different brings little gain. when they are all in the same boat, bank executives can easily argue that the problems were not self - inflicted. however, the loss associated with being different is considerable if a bank is alone in encountering problems. the result is that banks engage in herd behaviour and the risk in the financial system becomes excessive. so far i have spoken about how various forms of market failure in the banking system lead to systemic risk that is higher than what is socially optimal. the level of credit in the economy may also become excessive. the economy then becomes vulnerable. the reason is external effects between banks and the wider economy. loan collateral can give rise to such external effects. one reason banks demand collateral is because they do not have complete information about loan applicants. the collateral value is a security and a restriction on the amount that can be borrowed. when overall credit increases, the value of residential and non - residential property rises. other economic agents experience a rise in their own collateral values, which they then use to borrow more. but rapid credit growth increases the risk of a deep economic downturn. the interaction can go into reverse. borrowers that have to sell the collateral to deleverage, push down the collateral values of other borrowers. profitable projects no longer receive funding and the real economic costs may prove substantial. individual borrowers do not take into account how collateral values will affect other economic agents, or in other words do not take into account the increased systemic risk they inflict on others. the parallel with environmental economics fits well here. when pollution has no cost, it becomes excessive. in addition to the contagion effects through loan collateral, costs may arise from the market