Bank of Canada: no need for fixed exchange rate

OTTAWA (Reuters) - Canada has no need for a fixed foreign exchange rate despite the damage done to manufacturers by the recent rapid rise in the value of the Canadian dollar, Bank of Canada Governor Mark Carney said on Tuesday.

Carney made his comments to the House of Commons finance committee when asked whether those hit hard by the strong and rapidly fluctuating Canadian dollar would not benefit more from a fixed rate or a North American currency.

"There's certainly nothing we've seen through the course of the crisis that has lessened our view that Canada is well served by having the policy combination of the floating exchange rate and inflation targeting," he said.

The Bank of Canada has for years ruled out both the idea of a fixed exchange rate and a common North American currency.

Carney said a floating exchange rate helps Canada adjust to various economic shocks.

"The exchange rate acts first as a shock absorber, adjusts in real time, quickly, to those shocks, which helps our economy to move in the right direction," he said.

"The alternative ... is wholesale adjustments of wages and prices that are much more painful and much more protracted."

He said the advantages of fixed exchange rates, such as lower transaction and borrowing costs, are largely micro-economic. Canada already has very low borrowing costs, he said.

"It's hard to see the upside (of fixed rates). It's easy to see the downside," Carney told the committee.

"The advantages of a floating exchange rate combined with a credible monetary policy framework -- that's crucial -- far outweigh those perceived advantages of (a) fixed (rate)."

(Reporting by David Ljunggren; editing by Peter Galloway)