Canada is entering a recession confirmed Pierre Duguay, deputy governor of the Bank of Canada, in a speech Thursday, hinting that further rate cuts may be required.

Speaking to the Risk Management Association in Toronto, Duguay noted that despite recent monetary and fiscal policy actions designed to support global economic growth, “the Canadian economy is entering a recession as a result of the weakness in global economic activity, the associated decline in our terms of trade, and the drop in household and business confidence.”

Duguay said that the depreciation of the Canadian dollar “is providing an important offset” to the effects of weaker global demand and lower commodity prices, and 150 basis points in rate reductions delivered in October and December “will provide timely and significant support” to the Canadian economy.

That said, he left the door open to further rate cuts, adding that ahead of the next interest rate announcement on January 20, and the bank’s Monetary Policy Report two days later, “we will continue to monitor carefully economic and financial developments in judging to what extent further monetary stimulus will be required to achieve the 2% inflation target over the medium term.”

Apart from his comments on the economy, Duguay’s speech focused on the importance of sound risk management for financial system stability. He noted that, “The current crisis has exposed serious flaws in prevailing risk-management models and showed ways to enhance our ability to manage risk. Policy-makers are also considering steps to make the financial system more resilient so that we may be better prepared for the next storm.”