* Carney repeats conditional pledge to hold rates low
* Says no need for same monetary policy as the Fed
* Targeting asset prices is not main means to stability
* Vows not to repeat past mistakes following crises
By Louise Egan
OTTAWA, March 11 (Reuters) - The Bank of Canada believesinterest rates should stay at near-zero levels for another fewmonths even though the economy is showing signs of quicker thanexpected recovery, the central bank chief said on Thursday.
At the same time, Bank of Canada Governor Mark Carney saidthere was no need for Canada to align its interest rate moveswith those of the United States, as speculation grows thatOttawa could start removing emergency stimulus measures beforeWashington does.
"It"s our policy right now that the appropriate path ofmonetary policy through the end of June this year is to keepour target rate at one quarter of 1 percent," Carney tolduniversity students following a speech.
"But we will adjust that as appropriate over time in orderto achieve our inflation target," he said.
The U.S. Federal Reserve has committed itself to keepborrowing costs low for an "extended period" and most primarydealers do not expect any change in that language after a Fedmonetary policy meeting next week. [ID:nN10148647]
Canada"s economic and financial linkages with the UnitedStates are so strong that most economists expect some degree ofmonetary policy coordination. Carney tried to downplay thoseexpectations.
"It is absolutely not necessary to have the same monetarypolicy at the same time in the two countries," he said.
The bank slashed rates to 0.25 percent in April 2009 andtook the unconventional step of committing itself to holdingthe rate at that level until the end of June this year,conditional on inflation staying on a desired trajectory.
In its rate statement earlier this month, following asurprisingly strong fourth-quarter year-on-year growth of 5percent, the bank sounded slightly more hawkish on eventualrate hikes.
Carney said the bank would take action if it appearedpoised to miss its 2 percent inflation target. "With a flexibleexchange rate we"re on the hook for achieving the inflationtarget. We don"t have an out."
HAVE CAKE, EAT IT TOO
Carney also weighed in on a debate about whether centralbanks should take asset prices into account when settingmonetary policy, and he suggested that this is not necessary ifcountries have solid financial regulations.
"There is some discussion in a range of settings --academic and central bank -- about this relationship betweenprice and financial stability, and the role of monetary policyin either fomenting sharp asset price movements or leaningagainst them," he said.
"Our view is that the first line of defense of financialstability is regulation ... the experience with Canada,Australia, other major inflation targeters has been that youcan have your cake and eat it too -- you can have pricestability, you can have financial stability if you get theregulatory side right."
This year will be crucial for G20 leaders to agree on a setof reforms to the financial system, he said, expressingconfidence that they would succeed.
In his speech, Carney said the Bank of Canada wasdetermined not to repeat the mistake of the 1970s when itoverestimated the rate of potential growth in the economyfollowing a major crisis.
In the bank"s most recent forecasts, it said potentialgrowth, or the speed at which the economy can grow withoutinflationary pressures, is about 1.5 percent in 2010 and 1.9percent in 2011. Carney said the Canadian economy is unlikelyto be able to grow by more than 2 percent in the longer term,lower than the historical norm, due to restructuring in theeconomy. (Additional reporting by David Ljunggren, Ka Yan Ng andJennifer Kwan; editing by Peter Galloway)
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