March 30, 2016 / 6:07 PM / 2 years ago

UPDATE 2-Canada's Morneau says economy will benefit from weak C$ over time

(Adds interview with Morneau, background)

By Richard Leong and David Ljunggren

NEW YORK/OTTAWA, March 30 (Reuters) - Canadian Finance Minister Bill Morneau on Wednesday said it may take more time for the country’s economy to reap the benefits of a weaker Canadian dollar as domestic manufacturers adjust to its impact.

The dollar hit its weakest level in more than a decade in January, dragged down by the steep drop in oil, a major Canadian export. It has since recovered slightly as energy prices stabilized.

“Positive effects of the lower dollar may take longer to materialize, especially as our manufacturing sector adjusts after a longer period where the dollar was strong,” Morneau said in a speech to an event sponsored by the Canadian Association of New York.

Morneau later said that while a lower Canadian dollar should boost exports, firms would first have to invest in plants and equipment to boost capacity and thereby take advantage of increased foreign demand.

“We believe we’re starting to see the green shoots from that activity with some positive indicators,” he said in a phone interview.

“We think that will continue to be the course over the next four to six quarters ... from Canadians making investments to enhance our ability to export.”

Separately, Bank of Canada Deputy Governor Lynn Patterson said on Wednesday that it takes up to two years for the full effect of exchange rate movements to be felt in the economy.

Given that the Canadian dollar dropped 15 percent against the U.S. greenback in 2015, this means the non-commodity sector should start to see more benefits, she added.

In his phone interview, Morneau also said the new Liberal government had no specific plans to relax regulations limiting foreign investment in the sensitive domestic telecommunications, energy and airlines sectors.

Canada welcomed foreign investment but would also ensure it was good for the country’s long-term economic health, he said. (With additional reporting by David Ljunggren; Editing by Alan Crosby)

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