cent midpoint of a 1 to 3 per cent target range. the target has proven to be a very effective anchor. inflation has been low and stable, and we've experienced solid growth in output and employment. canada was the second major country to adopt an inflation target. today more than 20 countries have such targets. in other words, there's a good deal of international experience with inflation targeting. as in canada, this experience has been very positive : inflation targeting, working in tandem with a floating exchange rate, has generally resulted in low inflation and sustained economic growth. stepping back, and looking beyond these positive results, we can distinguish four key characteristics of a credible and effective monetary policy framework : clear objectives and effective tools ; legitimacy ; the effective use of markets ; and transparency and accountability. let me say a few words about each of these in turn. first, clear objectives and effective tools. the bank of canada's monetary policy has one clear objective - to keep inflation at 2 per cent. and it has one instrument with which to get the job done - the target for the overnight interest rate. second, legitimacy. the inflation target is not just the bank of canada's target, but also the government's. this adds legitimacy to the monetary policy objective, thereby strengthening it. but legitimacy also comes from our experience of low inflation and good economic outcomes, with the result that there is now broad support among canadians for anchoring monetary policy to a low inflation target. third, monetary policy works best when it is market based. we learned some valuable lessons in the 1970s. we learned that direct controls on wages and prices do not work beyond the short run, and that they introduce a myriad of distortions, which reduce market efficiency. we also learned that direct controls on credit expansion are difficult to calibrate and enforce. they also reduce the efficiency of the financial system as it allocates resources in the economy. today, monetary policy is implemented entirely through financial markets. by controlling the overnight interest rate, monetary policy influences interest rates along the yield curve, as well as other asset prices. these, in turn, influence spending, and, ultimately, inflation. we have found that the transmission of monetary policy works most effectively when the central bank implements policy through markets, when it maintains a credible policy goal, and when it communicates its objectives and actions clearly. this leads me naturally to the fourth characteristic - transparency and accountability. one of the most important things we have learned with inflation

pmi ) indicate that the manufacturing sector will likely record another disappointing performance in the third quarter. the pmi remained below the 50 threshold for two consecutive months, before recovering to a level of 50, 7 index points in september 2011, while the employment index has remained below the 50 index level. according to kagiso, the pmi leading indicator, measured as the ratio between new sales orders and inventories, remained at an early - 2009 low of 0. 85 in september. this is reflective of high inventory levels, well above the demand for factory goods. furthermore, the pmi average for the third quarter was 47. 2 index points ( 55. 1 recorded in the second quarter ), which does not bode well for actual factory output and growth in the third quarter. weak conditions on the production side reflect both the poor state of the global economy, as well as the deceleration in domestic demand conditions. domestic expenditure grew by 1. 3 per cent in the second quarter of 2011, from an annualised rate of 7. 9 per cent in the first quarter. household consumption expenditure decelerated significantly and government expenditure contracted. the combined impact of rising inflationary pressures that affect households ’ disposable income, falling consumer confidence, the still relatively weak housing market, declines in the value of assets, high debt burdens and reduced access to credit further adds to households cautiousness in their spending decisions. strong wage inflation during 2010 is also starting to take its toll on employment creation and the unemployment rate increased to 25. 7 per cent in the second quarter of this year ( although even through the boom periods, unemployment still remained high around 22 per cent ). continued labour bis central bankers ’ speeches shedding is expected to weigh on consumer spending going forward, while the lower growth trajectory, in turn, does not bode well for employment creation. other indicators pointing to a slowdown in economic growth, include the weaker growth and / or in some instances a decline in retail sales, vehicle sales and house prices. against this background, policy makers and economists have downgraded their growth forecasts for the year. the bank has lowered its growth forecast, due to the lower - thanexpected gdp outcome in the second quarter, the impact of industrial action on key sectors such as manufacturing, as well as a downward adjustment to the global growth assumptions. the bank ’ s latest projections show growth to average 3. 2 per cent in 2011, lower than the previous forecast of 3.