Bank of Canada Governor David Dodge today reiterated that interest rates will be heading higher, but the central bank is in no hurry to get there.

In a speech to the Canadian Association of New York, Dodge reiterated yesterday’s Monetary Policy report update saying that the global economy has been unfolding largely as expected, and the prospects for continued robust growth are “quite favourable”, especially over the near term.

“With the economy expected to return to full production capacity in the second half of 2006, core inflation should move back to 2% around the end of next year. Based on the scenario implied by oil-price futures, total CPI inflation is expected to remain above the 2% target for some time, before moving slightly below 2% in the second half of 2006.

“In line with this outlook, a reduction of monetary stimulus will be required over time,” he noted. “However, I want to stress again that the Bank is not committed to any particular interest rate path or timetable.”

Dodge also talked about the forces currently shaping the global economy, including movements in exchange rates, the emergence of China and India as economic powerhouses, and the large and growing current account imbalances in the United States and Asia.

Monetary policy is helping Canada’s economy adjust to these forces, Governor Dodge explained, by keeping inflation low and stable, and by aiming to keep the economy operating at full capacity. Canada’s floating exchange rate, an important part of the Bank’s monetary policy framework, also helps with the adjustment process by offsetting swings in demand for Canadian-produced products.