on consumer confidence and the growth of disposable income. in addition, the repair of household balance sheets will take some time. similarly, the repair of major foreign financial systems remains a work in progress. the disappearance of the shadow banking sector and the ongoing strains of the recession will mean that it will take further restructuring and considerably more capital for financial conditions to return fully to normal. in the meantime, the financial sector will continue to restrain growth in many industrialized economies. there are some offsets to these external headwinds. first, the composition of u. s. activity will likely become more favourable to canadian growth. the recent pattern of u. s. activity, with its severe weakness in the housing and auto sectors, meant that the u. s. recession proved particularly challenging for our businesses. as these sectors stabilize and begin to grow modestly, this effect will be reversed and will be important for canada. in addition, while the overall pace of global growth will likely be subdued, the canadian economy will rely more on emerging - market growth for external demand. this would provide an important support for commodity prices and, therefore, the canadian economy over the medium term. however, the ability of emerging markets to sustain more vigorous growth in domestic demand remains an open question. for example, rapid expansion of domestic lending is challenging in any environment, particularly in those countries, such as china, with developing banking systems. on balance, the external sector may not be reliable as the sole engine of the canadian recovery. in this context, domestic factors could prove decisive. as noted earlier, contributions from inventories will be temporary. housing should provide some near - term strength, but the degree of pent - up demand appears limited. with the fiscal stimulus largely finished by next year, consumer and business spending will need to drive economic growth. sustained growth in consumer spending will require household decisions that are based on confidence rather than relief, and that are funded by income rather than debt. a rebound in disposable income growth will require improved labour market conditions, starting with hours worked, followed by stabilization, and then by increases in employment. given the slack in the economy, this could take some time. firms will need to act with confidence as well. replenishing inventories and restarting idled capacity will not be sufficient. hiring and investment intentions, and eventually capital spending and employment decisions, must recover as well. given the openness of our economy, these prospects will turn importantly on perceptions of

changes to global growth, structural reforms to improve labour market flexibility and to retrain workers will be important. finally, surplus countries that need to boost domestic demand, such as china, will require a comprehensive program of structural reforms. the necessary reforms to social safety nets and to liberalize the domestic financial sector are complex and will take years to bear fruit. they must also be complemented by material adjustments to the real exchange rates of deficit and surplus countries. reaffirm in the face of these challenges and uncertainties, the credibility of macroeconomic policy is essential. one constant is the bank's unwavering commitment to price stability. the single, most direct contribution that monetary policy can make to sound economic performance is to provide canadians with confidence that their money will retain its purchasing power. that means keeping inflation low, stable, and predictable. price stability lowers uncertainty, minimizes the costs of inflation, reduces the cost of capital, and creates an environment in which households and firms can invest and plan for the future. the bank's sole monetary policy objective is to achieve its 2 per cent inflation target. having a simple, credible price stability objective proved enormously helpful during the crisis and should continue to be so during the eventual exit. the bank approaches inflation control in a symmetric way, meaning that we care as much about inflation dropping below the target as about inflation rising above the target. inflation targeting is equally able to prevent the entrenchment of high and volatile inflation or the onset of persistent deflation. as a consequence, inflation expectations have remained well anchored at the bank's 2 per cent target. the ability to maintain inflation expectations has helped to keep real interest rates low and to provide the necessary monetary stimulus. the inflation anchor remains essential, even when providing extraordinary guidance. this is why the bank's current commitment – that our target rate is projected to remain at its effective lower bound through the end of the second quarter of 2010 – is explicitly conditional on the outlook for inflation. it is important to recognize this statement for what it is – the bank's judgment that our policy rate should remain at 1 / 4 per cent at least through the end of june of next year in order to achieve our 2 per cent inflation target. this conditional commitment does not indicate what will happen following the end of the second quarter of 2010. nor is it a guarantee that rates will absolutely remain at the current level. in short, it is an expectation, not a promise. if circumstances affecting the outlook for