support for the canadian dollar, by raising the bank rate by ½ of a percentage point to 5 per cent. it is probably too early to be drawing conclusions and lessons from this latest episode of world financial turbulence. still, when it comes to canada, it is worth noting the different reaction in domestic financial markets this time compared with our experience during the mexican currency crisis of early 1995. back then, the international financial turmoil had the effect of focusing market attention on canada ’ s fiscal problems, causing investors to demand higher risk premiums. and this led to sharply higher longer - term rates in canada. this time, as i mentioned, domestic longer - term rates have been falling, along with comparable rates in the united states and europe, to their lowest levels in 30 years. what this tells me is that it pays to have one ’ s house in order. now we can see more clearly the importance of the remarkable progress that has been made since 1995 in fiscal deficit reduction. a declining ratio of public debt relative to the size of our economy will help to further reduce our vulnerability to international shocks. from a monetary policy perspective, the best contribution your central bank can make to helping the economy cope with external shocks is to ensure that inflation remains under control. nothing is as important to investors, especially during turbulent times, as the assurance that comes from the protection that low and stable inflation provides for the value of money. concluding remarks in closing, let me reiterate that, in view of the uncertainties involved, it is difficult at this time to make precise assessments of the likely effects of the asian crisis on the canadian economy. but in making judgments about our economy, we must also consider the positive influences of the economic momentum in many of our major trading partners, as well as the prospects for domestic demand in canada. the main factors at play in the outlook for domestic demand suggest that business and household spending should continue to grow. in particular, monetary conditions are very stimulative, providing considerable encouragement for expansion. all in all, the economic outlook remains positive. and with our low inflation rate and greatly improved fiscal position, the canadian economy is now in better shape to withstand the impact of the asian crisis and to continue to make headway in improving the well - being of canadians.

, that economic growth in 1998 will not be as robust as appeared likely last fall. and some canadian regions and industries, particularly those with heavier reliance on primary commodities and exports to asia, will no doubt feel the impact more than others. as well, there are the economic effects of the recent ice storm in eastern ontario, quebec, and the maritimes to consider. but i want to stress that, for the economy as a whole, the outlook is still favourable for continued expansion in output and employment, and for a further gradual reduction in the margin of unused capacity. recent developments in international financial markets next, i would like to say a few words about recent developments in world financial markets. the key feature of these developments has been the sharp appreciation of the us dollar. measured against all major currencies, the value of the us dollar has risen by about 4 per cent since late september. two main factors have combined to push the us dollar up. the first is the remarkable strength of the us economy relative to the economies of its major trading partners. indeed, the us economy has been expanding more rapidly and operating at higher levels of capacity than were thought to be sustainable in the past. the second factor is the attraction that the large, efficient, and liquid us financial markets hold for nervous investors in search of a safe haven because of the events in asia. the dampening effect of the asian problems on expectations for primary commodity prices has also been a factor behind movements in the currencies of countries, like canada, that are important producers and exporters of such products. with all this going on, the canadian dollar has declined by just under 5 per cent against the us dollar since late september. because other major currencies have also fallen against the us dollar during this period, the canadian dollar has declined much less against these currencies. nonetheless, given the importance of our trade with the united states, the effective value of the canadian dollar, measured on a trade - weighted basis against all the major g - 10 currencies, has declined significantly in recent months. this decline in the value of our currency led to a further substantial easing of monetary conditions. but, as i said before, even with the effects of the asian crisis, the canadian economy is on track to continue expanding and moving towards full use of its potential. in these circumstances, the extent of the recent further monetary easing was not appropriate. that is why we moved last week to re - balance monetary conditions, and to provide