##ening and that the inventory adjustment, particularly in the electrical and electronic sectors, was less advanced than expected. accordingly, we revised down our projections for the second half of 2001 and the first half of 2002. and, at the end of august, we lowered interest rates to support domestic demand growth and to keep inflation near the target of 2 per cent over the medium term. the terrorist acts in the united states, and their worldwide fallout, greatly heightened the degree of uncertainty, further dampening near - term growth prospects. to underpin confidence in the face of this uncertainty, we took the exceptional step of lowering interest rates by ½ of a percentage point on 17 september, outside our regular schedule of fixed announcement dates. the ongoing economic consequences of the terrorist acts are very difficult to assess. these developments are unlike anything we have ever experienced in north america, and it will take some more time to understand their full implications. if we consider the direct effects of the attacks, their immediate impact on consumer and business confidence, and adjustments to address increased security risks, the bank expects that output growth in canada will be close to zero or slightly negative in the second half of 2001. for all of 2001, this implies growth of about 1½ per cent. as we look to 2002, the timing and strength of a recovery will depend crucially on geopolitics and on how soon confidence returns to normal in north america. but once the uncertainty stemming from terrorist acts dissipates, i expect that healthy growth in output, investment, and employment will resume, given canada's sound economic fundamentals. at present, one can envisage two scenarios with respect to confidence. in the first, confidence could be restored quickly, and robust growth could resume, supported by the substantial monetary and fiscal stimulus already in place. in the second, confidence could stay weak for some time and, consequently, growth would remain sluggish through most of 2002. under either scenario, by the end of 2002, our economy would still be operating at levels that are below capacity. core inflation is thus expected to fall to about 1½ per cent by the second half of 2002. total cpi inflation is also expected to decline to about 2 per cent by the end of 2001 and to move below that during 2002, if energy prices remain at or below their early - september levels. based on these considerations, on 23 october, we again lowered our key policy interest rate by ¾ of a percentage point. the cumulative reduction of 3 full percentage

orthodoxy to turn the crisis into the beginning of a new era. taking the opportunity given me here today, i would like to address several critical issues related to future monetary and macro - prudential policy, and to say a few words about strengthening global cooperation to achieve financial stability. global financial crisis and monetary policy the global financial crisis, as we all know, started in the financial sector but has eventually led to fiscal crises in many advanced economies, not to mention a global recession. in response to the crisis, central banks around the world undertook a wide range of measures. policy rates were cut swiftly, and non - conventional measures were also deployed including, among others, large - scale term - loans to troubled financial institutions, outright bis central bankers ’ speeches asset purchases, and interventions in credit markets. these measures have helped support financial markets and thereby avoid financial meltdown. despite such success on the financial front in the early phase of the crisis management, monetary policy fell short of avoiding deep recessions, which in turn triggered severe strains on the fiscal status of many advanced economies. the ensuing eurozone fiscal crisis is still an on - going event that is preventing the global economy from recovering a sound growth momentum – even four years after the outbreak of the global crisis. as we have seen in many instances, central bank activism is indeed pivotal in crisis management. but we should also be mindful of potential adverse side effects. socializing private losses may easily lead to moral hazard while central banks'over - stretched balance sheets could end up constraining the flexibility of future policy operations. massive increases in official liquidity may have negative spillovers across sectors and national borders. in this light, we should keep in our mind that monetary policy is no panacea. i believe that an indepth review of post - crisis monetary policy and its outcomes, including both successes and failures, should be a first step toward establishing new thinking on monetary policy. to be complete, however, our new thinking should go beyond its operational aspect to cover more fundamental dimensions such as the mandates and the governance structure of the monetary policy as broadly defined. i believe that new thinking on such dimensions is essential to our efforts to build a stronger institutional basis for crisis prevention. many specific questions arise in this regard. should the mandate of monetary policy be broadened to include financial stability – particularly in the context of inflation targeting? how should monetary policy be coordinated with macro - prudential policies? who should bear the responsibility of keeping financial stability if