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Bank of Canada Governor Mark Carney renewed a warning on Monday about persistent strength in the Canadian dollar and its possible effects on returning inflation to the Bank of Canada's target range. In a speech, he allowed that some of the currency's rise is justified by higher commodity prices and improved economic conditions, but in a question-and-answer session afterward he voiced concern about currency appreciation preventing inflation from returning to the bank's 1 to 3 percent target range.
"The currency is a major risk to the achievement of the inflation target, so we worry about that," Carney said, adding that he would be concerned by any persistent deviation from fundamentals. "Other things being equal, a persistently strong Canadian dollar would reduce real growth and delay the return of inflation to target," he said in his speech. The high Canadian dollar has dampened prices of imports, helping to keep inflation very low and even dipping to deflation recently.

Copyright Reuters, 2009

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