Incoming BoC head says not indifferent to FX swings

Wed Dec 5, 2007 3:55pm EST
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OTTAWA (Reuters) - Incoming Bank of Canada Governor Mark Carney said on Wednesday that the central bank was not indifferent to movements in foreign exchange rates, but it would be a mistake to fix the Canadian dollar to the U.S. dollar.

"It is not surprising that some have called for Canada to fix its currency to the U.S. dollar. In my opinion, it would be a mistake to do so," Carney said in opening remarks to the House of Commons finance committee.

He added: "With a fixed exchange rate, the adjustments would have to come through movements in overall output and in all wages and prices...

"I stress that this position does not mean that the bank is indifferent to movements in exchange rate."

Carney also confirmed his commitment to the central bank's 2 percent inflation target, saying well-anchored inflation expectations help to reduce swings in interest rates and support sustainable growth.

He pointed out that the bank is studying the possibility of lowering the inflation target, or adopting a price-level target. But he said "compelling evidence" in favor of a change would have to be seen to alter the current successful system.

Carney takes over from current Bank of Canada Governor David Dodge on February 1 for a seven-year term. He joined the bank as advisor to the governor on November 1.

(Reporting by John McCrank and Louise Egan; editing by Janet Guttsman)