efficient risk management framework and the adequacy of resources to mitigate risk. against this background, therefore, basle ii is synonymous with good risk management, not only of the core risk of credit default, but of a wider range of risks such as market risk and operational risk in pillar i. together with the mutually reinforcing pillars ii and iii, of regulatory review and market discipline, basle ii represents a formidable tool to insulate banks against inherent risks in the highly leveraged business of banking. in this process, we must be mindful of the fact that basle ii has been built on the experiences and risk parameters of developed, sophisticated economies. through customization to suit conditions and markets in emerging economies, which have fundamentally different characteristics, the principles of basel ii should be appropriately adapted to suit such conditions. the “ one size fits all ” solution of basle i will not suit the complexities of basle ii. the markets in which we operate have their own peculiarities and their own cultures. promoting international best practice in such a culture is, indeed, a challenge which demands a fundamental change in credit cultures, attitudes, and policies. the will to change is important and in the case of banking institutions, has to be mandated, if it is to be in the best interests of the major stakeholders, the depositors. full implementation of basel ii is, indeed, demanding for banking institutions and regulators alike. capacity building is an imperative on both sides, as is the framework for good risk management built on risk models. the supervisory capacity to assess and validate these models must be enhanced and developed. the magnitude of the investment in technology by the banks must be justified in a business sense. we must ensure that the cost of compliance does not outweigh the benefits from basle ii. emerging market economies are very vulnerable to the reputational risk of non - compliance. therefore we must take one step at a time. the infrastructure for compliance - legal, accounting and market - must be established and is an essential pre - requisite which underlies the success of these initiatives. the implications on the several sub sectors of our economy from basle ii will have to be examined carefully with regard to access to finance and the pricing of risk. uneven playing fields may arise as a result of the internationally active foreign banks adopting more advanced approaches, thereby improving their competitiveness over their local counterparts. will the models developed by the foreign banks be relevant for the risks in our markets? these are

followed by an economic update speech, where a member of our governing council explains how we considered the key elements related to the economic outlook in our decision - making process. yesterday, the bank maintained its policy interest rate. the ongoing backdrop for these policy rate discussions is a canadian economy that, after some challenging years in the wake of the oil price shock, is operating near its potential and inflation that is very close to our 2 per cent target. here in the province of quebec, growth was above 3 per cent last year — its best performance in more than 15 years. the broad - based growth since the beginning of 2017, and its implications for inflation, has led us to raise the policy interest rate three times since july. with the economy facing uncertainty on a few fronts, each decision, including yesterday ’ s, is less straightforward than the picture i just painted might suggest. the context for the decision before diving deeper into the economic environment we are operating in, let me remind you what we are trying to achieve and how we do it. the bank targets an inflation rate of 2 per cent, within a band of 1 to 3 per cent. it is worth noting that inflation has averaged close to 2 per cent in the past 25 years, and that this success can be attributed in part to our policy, adding to its credibility and increasing public trust in our framework. to reach our goal sustainably, aggregate demand in the economy must be in balance with aggregate supply. our main tool for achieving this is the policy interest rate, which allows us to stimulate or temper demand. the policy interest rate is currently below our estimate for the “ neutral ” rate — that is, the equilibrium interest rate when inflation is at target and the economy is growing at potential, once the effects of any shocks have faded. that means our policy stance remains accommodative. another way to see this is by noting that once adjusted for inflation, our real policy rate is - 0. 75 per cent. our accommodative stance reflects the presence of some factors that continue to weigh on the economy and, in turn, on our forecast for inflation. for example, two such factors are the uncertainty surrounding trade policy, which is restraining business investment, and the impact of the new mortgage financing guidelines on housing activity. with this context in mind, i will share our assessment of global and canadian economic developments and elaborate on the issues that we are watching closely. - 3global economic developments and exports first, let me