. and so, canadians'expectations for inflation have become firmly anchored around 2 per cent. this climate of low, stable, and predictable inflation has helped to smooth out the ups and downs in the economy and to create the best possible environment for longer - term economic growth in canada. inflation and the economic outlook let me now give you the bank of canada's views on the state of the canadian economy and the outlook. first, a bit of history. following the 11 september 2001 terrorist attacks in the united states, the bank of canada, like other major central banks, moved quickly and aggressively to cut its policy interest rate to shore up confidence. that dramatic monetary policy action helped a great deal. by the spring of 2002, it became evident that our economy hadn't been knocked off track by the events of 11 september. indeed, evidence was starting to build that the economy was growing faster than its production potential, taking up the remaining small amount of economic slack. so, we raised our key policy rate three times between april and july, by a total of three - quarters of a percentage point. but by late last summer, we were seeing the effects of financial headwinds, geopolitical uncertainties, and continued weakness in the global economy. these factors remained in play through the autumn. as a result, we refrained from raising interest rates, even though inflation was accelerating. our initial analysis was that this increase in inflation would be temporary. however, both core and total cpi inflation remain well above target. this reflects the impact of higher - than - expected prices for crude oil and natural gas, continuing increases in auto insurance premiums, and price pressures in certain sectors, such as housing, food, and some services. the higher inflation also suggests an underlying firmness in the price - setting environment. in other words, relative price increases wouldn't be pushing up trend inflation if there was not sufficient demand. indeed, final domestic demand - especially household spending - has remained robust. however, economic growth in canada moderated in the final three months of 2002, largely because of weaker exports - most notably, a decline in automotive shipments to the united states. even with this slowing growth in the fourth quarter, upward revisions for previous quarters leave the level of economic activity slightly higher than we had been monitoring. in fact, canada's economy remains near full capacity. let me list some of the indicators that support this view : high industrial capacity utilization ; near record - high labour force participation rates

is obviously too early to say the final judgments, july and august cpi data indicate that vat increase is reflected in the prices to a smaller degree than previously expected, and, probably more importantly, there is no sign that underlying inflation trend would have accelerated due to the tax increase. i find it important to emphasize in this context that monetary easing in hungary is also conditional on the evolution of global risk appetite. we have learned during the crisis that risk premia can be extremely volatile. it is therefore essential to have a robust strategy, to be prepared to cope with potential unfavorable shifts in risk perception. to this end the monetary council has decided to follow a gradual approach in reducing the interest rate. despite of the dominance of good news of the last few months becoming complacent at the current juncture would be a great mistake. we are perfectly aware that still a lot has to be done in hungary to finally reach a sound, sustainable fiscal and external position, characterized by dynamic growth and low inflation and well functioning financial sector. monetary policy of the magyar nemzeti bank has a clear objective : price stability. this does not mean that we are narrowly looking only at inflation forecasts, but rather, in a broader context, we want to contribute to longer term predictability in the hungarian economy. i am convinced that price stability cannot be attained and maintained without longer term predictability. to this end we will be focusing on managing risks to stability and sustainability, risks that we expect to be with us for a protracted period of time. thank you for your attention!