midpoint of a target range of 1 to 3 per cent over the medium term. it bears mentioning that the target is symmetrical. we care just as much about inflation falling below as we do about it rising above the target. the bank raises or lowers its policy interest rate, as appropriate, in order to achieve the target typically within a horizon of six to eight quarters – the time that it usually takes for policy actions to work their way through the economy and have their full effect on inflation. over the past couple of decades, the average rate of inflation has been very close to target. even during the global economic and financial crisis, our commitment did not waver. the inflation target is sacrosanct to us and has become a credible anchor for the inflation expectations of canadians. a key component of the bank of canada ’ s inflation - targeting framework is a flexible exchange rate. while the exchange rate is influenced by such variables as commodity prices, relative inflation rates, and relative interest rates, its value is determined in currency markets. the credibility earned by the bank over the past twenty years allows us to take advantage of the flexibility inherent in the framework with respect to the amount of time it takes to return inflation to target. the recent turmoil tested the limits of our flexible inflation - targeting framework. nonetheless, the inflation expectations of canadians remain well anchored, proving that our framework is secure and working. but it also informs us that we need to validate those expectations to maintain our credibility. this brings me to a discussion of the domestic context. the context in canada the severity of the global economic and financial crisis meant that the recession it triggered in canada was different from any other postwar recession. canada experienced a particularly deep contraction of investment and exports, as business confidence plummeted along with global demand. in the immediate aftermath of the crisis, stimulative monetary and fiscal policies proved highly effective in supporting robust growth in domestic demand, particularly household expenditures, which grew to record levels. yet, as effective as it has been, with domestic demand now slowing, the limits of this growth model are clear. what ’ s less clear is the rebuilding process underlying the necessary rotation of growth toward net exports and business investment. while the canadian economy as a whole has recovered from the recession, thanks to domestic demand, the depth and duration of the global recession delivered a direct, sharp blow to canadian business. in many cases, temporary plant shutdowns were not sufficient to match the fall in demand. some firms permanently downs

the reliance on external credit - rating agencies in the management of the government ’ s assets and liabilities. there is a lot of money at stake. in 2012, the bank managed government of canada daily cash balances averaging about $ 17 billion. we also managed, on behalf of the government, official international reserves amounting to about us $ 69 billion. delivering confidence in our financial system as with any plumbing system, we tend to take notice only when things go wrong. through the crisis and since, the bank ’ s work has meant that the resilience of canada ’ s payment clearing and settlement system has been maintained at a very high level, ensuring that canadians can have confidence that the economy is supported by solid financial market infrastructures. financial stability at home is necessary, of course, but not sufficient. the crisis made it abundantly clear that the global financial system needed remodelling – and the bank of canada has been at the forefront of global reform work. canada has also made good on our g - 20 commitments. among other reforms, we have put in place basel iii capital standards ahead of schedule. we have made significant strides on other market infrastructure reforms, which we can address in detail during our discussion. these are real accomplishments, and our financial system is stronger as a result. but we must not lose momentum, here in canada or on the international stage. more work is required to end the phenomenon of institutions that are too big to fail, including recovery and resolution plans for banks. and countries need to address the issue of shadow banking to bis central bankers ’ speeches ensure that systemically important financial institutions operating outside the perimeter of regulation come broadly into line with their regulated counterparts. delivering confidence in monetary policy finally, confidence is clearly important for the conduct of monetary policy. monetary policy in canada is supported by a governance structure that instills confidence and ensures that canadians, through their government, have a say in setting the monetary policy framework. importantly, the structure also ensures the independence of the central bank to make the right policy decisions to achieve our inflation target. canada ’ s monetary policy framework is a good one. after a tremendous amount of research, canada adopted an inflation - targeting regime in 1991. since 1995, the target has been 2 per cent. we recognized early on that a commitment to hold inflation absolutely steady at 2 per cent was unrealistic. shocks to the economy must be taken into account. so the framework is designed to keep total cpi inflation at the 2 per cent