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Six months ago, at the time of the last Monetary Policy Report, the global economic and financial environment was volatile and highly uncertain because of the adverse situation in Asia and the fallout from the Russian debt moratorium.

This Report outlines recent developments in the Canadian economy that affect the rate of inflation and provides an account of the measures taken by the Bank of Canada to control inflation.

Effective 1 November 2003, the Bank of Canada abandoned its practice of backdating the results of settlement of payments through the Automated Clearing Settlement System (ACSS). It has adopted instead a system of "next-day" settlement under which the results of the settlement process will appear on the central bank's books on the day the items actually settle in the ACSS. Since July 1986, settlement of these items had occurred at noon the day after items were presented for clearing, but the results were recognized on the Bank's books the previous day, through backdating, or "retroactive" settlement. The new system should simplify the payments process and improve the reporting of settlement risk, as well as promote cost-effectiveness within the payments systems. ACSS participants have agreed among themselves to implement an interest-compensation mechanism in order to avoid imposing a float charge on their customer base.

The Bank of Canada's 2004 research conference examined the real and financial linkages between the Canadian economy and the economies in the rest of the world. Although Canada has profited enormously from its openness to international trade in goods, services, and financial assets, many of the most significant shocks to the Canadian economy in recent years have come from abroad. For these reasons, understanding the extent and nature of the external linkages, their implications for the Canadian economy, and the process by which the Canadian economy adjusts to external shocks is of critical importance both for monetary policy and for monitoring the financial system. This article describes the purpose of the conference—to deepen economists' understanding of these important issues—and provides highlights of the papers presented in each of the five sessions, as well as summaries of the keynote lecture and the discussion of the policy panel.

The two key components of the Bank's monetary policy framework are an "anchor," the inflation target, and a "float," the flexible exchange rate. Living by the ocean, you know better than I that a good mooring is one that keeps a boat in place, yet allows some give and take for the wind and the tide.

Inflation in Canada remains high but should come down quickly to around 3% in the middle of this year because of lower energy prices, improved supply chains and restrictive monetary policy. The Bank projects that inflation will reach the 2% target by the end of 2024.

Thank you for inviting me here today. It is a pleasure to be with you. This afternoon, I would like to talk about liquidity and the role of the Bank of Canada.

Over the past year, both private sector financial market participants and public sector authorities have been preoccupied with the topic of liquidity as never before. Throughout the financial market turbulence, private liquidity management has become tremendously important.

The adjustment to higher interest rates is exposing vulnerabilities in the global financial system. Recent banking sector stresses serve as a reminder that risks can arise and spread quickly. Key areas of concern are bank funding, liquidity in fixed income markets, and households’ ability to service their debts. Other financial system concerns relate to cyber attacks, climate change and cryptoasset markets.