Canada’s economy has shown remarkable strength over the past two years, despite a number of unfavourable developments that originated mainly from abroad, Bank of Canada Governor David Dodge said today in a speech at the University of British Columbia.

Dodge commented that domestic demand has been stronger than anticipated due to the low interest rates. He hinted that rates will go higher, saying, as the economy expands and approaches capacity, “further timely and measured reductions in the amount of monetary stimulus will be necessary.”

But the timing of those increases are not certain. Dodge noted that the “uncertainties bearing on the outlook appear to be greater than they were in early July.”

With respect to the short-term economic outlook, Dodge underscored that “domestic demand in Canada remains stronger than expected, bolstered by the substantial amount of monetary stimulus still in the economy.” He noted, however, that “there are downside risks and uncertainties, mostly originating from outside Canada.”

There was little market reaction to the Governor’s speech.