In his first major speech outside North America, Bank of Canada Governor David Dodge reviewed the central bank’s outlook and discussed the bank’s monetary policy framework.

At an event jointly sponsored by la Chambre de Commerce France-Canada and Les Canadiens en Europe, Dodge reinforced the view that “the worst of the downturn is over. A recovery is underway.”

He noted that the Bank of Canada expects that first half growth will be moderate, and should accelerate in the second half, to 3% to 4%, strengthening further in 2003. “This means that later this year, our economy should start expanding at rates exceeding the growth of potential output. At that point, the slack that has built up over the past several months will begin to be absorbed. Still, it could be well into 2003 before the actual level of output in the Canadian economy will again reach its potential level.”

Dodge also discussed how the Bank of Canada aims to promote economic growth by means of a monetary policy symmetrically focused on a 2% inflation target. “We pay equal attention to any significant movement away from 2% — whether above or below,” Dodge said. “By working in a symmetrical way in response to surprises in demand, our inflation-targeting system helps to smooth the peaks and valleys of the business cycle. This promotes sound, and generally less variable, economic growth.”

He also reiterated the Bank’s commitment to an independent currency. “For Canada, our best choice is to have inflation targets as an anchor for our monetary policy, and a distinct, floating currency,” he added.