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TORONTO (Reuters) - Commodity prices are likely to remain high for longer than in previous booms, Bank of Canada Governor Mark Carney said on Tuesday, while repeating the central bank's recent warning that interest rates may need to rise.
Carney, asked to name potential mistakes that investors could make, told a business audience that one error "would be to think that ... current elevated levels of commodity prices are a temporary phenomenon."
"Eventually, all commodity booms end, but this one in our view will go on for some time," he said, noting that Canada is well positioned in a global "commodity super cycle."
The comments came after the central bank last month surprised markets with unexpectedly hawkish language in its interest rate announcement, fueling bets on a hike later this year.
Carney reiterated that message on Tuesday.
"We've observed that with an economy that has been growing above potential, with underlying inflation dynamics firming, that some modest withdrawal of some of the exceptional considerable monetary stimulus that's currently in place may become appropriate," he said.
Carney, who is also chairman of the global Financial Stability Board, cautioned that any rate hikes would be weighed carefully within the context of international risks, such as Europe's debt crisis, which he said Canada is not completely insulated against.
He added that Europe should not think that it will fix its problems merely by shoring up the banks and restoring order to public finances because the euro zone also has a balance-of-payments crisis.
"Even if you fix the banks, which you need to do, and even if you get your budgets under control, which they need to do, you won't have solved an underlying problem, which is relative competitiveness, for example of Spain versus Germany," said Carney.
He stressed that the problem can only be solved, in the example he cited, by Spanish productivity going up relative to Germany or Spanish wages becoming more competitive with Germany's.
Carney, appearing in Toronto to accept a "Canadian of the Year" award from a local speaking group, used his speech to touch on broader issues including financial inequality, the importance of a strong public service and the need to balance the role of markets with government oversight.
"There is a need … to rebalance the relationship between governments and markets. Now we all know stagnation occurs when governments dominate markets and it's not just the extreme of communism but the corporatist Europe in the '70s and '80s," he said.
"But it's also true as we've just learned that sooner or later disasters come if markets dominate, absolutely dominate governments and we did see it in the run-up to this crisis."
Additional reporting by Jon Cook in Toronto and Louise Egan, David Ljunggren and Randall Palmer in Ottawa; Editing by Jeffrey Hodgson