argued that this less - than - stellar reputation results in higher financing costs for our firms. thus, it is necessary that the behaviour of market operators be monitored and that violators be prosecuted and appropriately punished. a regulatory framework that ensures strict application of the law and that punishes dishonest players will reinforce the credibility of markets and investor confidence. rising to this challenge will involve complementary and sustained action by several bodies at both levels of government : securities commissions, police forces, prosecutors, and the courts. it will also require that all stakeholders develop a solid expertise. integrated market enforcement teams ( imets ), which unite various law - enforcement forces, are a step in the right direction. however, we must push for greater co - operation, since only in that way will we be able to mobilize the complementary expertise of all participants. the canadian economy faces stiff international competition. to continue to prosper, it must be able to count on the support of an efficient financial system under a modern regulatory framework. the porter commission provides good advice for legislators and regulators : the future of our financial system remains ever and always dependent on competition and innovation. from monetary policy to economic development what is the role of monetary policy in all of this? in a narrow sense, monetary policy is a user of the financial system. it targets the overnight rate, but relies on efficient markets to transmit its impact throughout the economy. this explains the strong interest of the bank of canada in the issues that i have discussed earlier. at the same time, solid monetary policy reduces costs and volatility in credit markets. it's a matter of give and take, so to speak. more generally, we can further assert that good monetary policy, like an efficient financial system, yields considerable benefits to a country's economy. we observe a positive feedback mechanism. in short, the bank of canada believes that by keeping inflation low, stable, and predictable, it maximizes its contribution to the well - being of canadians. let us look at that in greater detail. the adoption of an inflation - targeting regime in 1991 stabilized inflation at approximately 2 per cent and provided an anchor for medium - and long - term expectations. together with the restoration of fiscal health, this stability permitted a decline in both the level and the volatility of interest rates. over the past 15 years or so, we have all witnessed a sharp drop in short - and long - term interest rates, at times to levels lower than u. s. rates

sense of the things the bank will be monitoring closely — the signs we will be looking for — to guide our decisions in the months ahead. monetary policy takes time to affect the economy. the decisions the bank makes now, and the ones we have made in recent months, will take up to two years to have their full effect on inflation. in the meantime, there are indicators we look at to help guide our decisions, and i will shed some light on those today. i ’ m going to begin with how our views on the economy have evolved since july because that will help give some context to yesterday ’ s decision. economic developments let me start with inflation. global supply challenges and elevated commodity prices continue to contribute to inflation here in canada. in addition, demand continues to outstrip supply in many parts of the canadian economy, and shortterm inflation expectations remain high. as long as this continues to be the case, there will be upward pressure on prices. many canadians experienced this over the summer as they tried to make up for the past two summers of missed vacations and family gatherings. they faced limited options and higher prices when it came time to book campsites, car rentals, hotel rooms, plane tickets and even dinner reservations. this price pressure is not limited to discretionary items like vacations and restaurants. in fact, things like groceries, gasoline and rent have seen some of the biggest price increases. these are all things canadians need and buy on a regular basis, so it ’ s impossible to escape the frustration and stress that inflation brings — especially for those living on lower or fixed incomes. high inflation is affecting businesses too. inputs — things like raw materials, intermediate inputs and labour — are more expensive. while businesses can try to pass on higher input costs by raising prices, inflation creates uncertainty that can affect investment decisions. in the long term, this puts downward pressure on productivity and prevents businesses — and the economy as a whole — from growing. although cpi inflation came in slightly lower in july, this drop was due mostly to gasoline prices. if we exclude gasoline prices, inflation increased and spread across components. in fact, more than half of cpi components grew more than 5 % in july, and the bank ’ s measures of core inflation continued to move up. all of them were at or above 5 % in july. this shows how strong underlying inflation remains in canada. with respect to the economy more broadly, it has evolved largely as we expected it would when we published the july monetary