HIGHLIGHTS-Bank of Canada governor speaks in Ottawa

TORONTO, March 24 (Reuters) - Higher-than-expected inflation in Canada has been the result of both transitory factors and underlying economic strength, the Bank of Canada said on Wednesday, and reminded investors that its pledge to hold interest rates low is a conditional one.

Below are additional comments from Bank of Canada Governor Mark Carney's appearance in Ottawa:

ROLE OF OLYMPICS IN RECENT CPI RISE

"We are talking about one month worth of data and one of the biggest elements of that inflation was temporary in the hotel accommodation in BC (British Columbia) for the Olympics, so the order of magnitude of that and the relative weight of that in the CPI index was higher than we would have expected. It accounts for more that half the shock.

We're not having the Olympics again for the foreseeable future, but there are other elements in there and on the whole, domestic demand and activity in Canada has been slightly firmer than we had expected."

ON CHOICE OF LANGUAGE

"Take the words for what they are: inflation slightly firmer, a combination of temporary and other factors, the broad brush dynamics on inflation unchanged, and we'll update in April."

ON WORDING OF THE CONDITIONAL COMMITMENT

"We've reiterated every time we've spoke since (making the commitment in April 2009) because someone's always asked about it, or we've said it proactively, that that commitment is explicitly conditional on the outlook for inflation because it's consistent with our mandate. That's our word. Our word is about that path, and that path being the right path.

"That's the standard we need to be held against and as we said many times, it's not a promise, it's an expectation. It's based on our projection and our expectations for inflation. We'll update that in April and lay out that view in more detail."

ON ECONOMIC GROWTH

"I would say that if you look at the balance of the second half of last year, you know, where we were in the fall ... third quarter, fourth quarter, second half was more or less as expected. You had that big import shock in the third quarter, which was unwound in the fourth."

"First quarter is looking stronger ... than we had projected ... There's elements that ... are probably being taken forward."

"One of the things we'll determine is how much does the first half of 2010, how different does that actually look versus where we were."

ON UNDERLYING INFLATION

"Underlying inflation is running less than 2 percent. There'll be wiggles around that and we'll put a finer point on it in our April MPR in terms of our expectations for the path of total and core (inflation) and the Canadian economy in general."

ON INFLATION DYNAMICS

"The underlying dynamics affecting inflation haven't changed including the starting point which is an economy with a fair degree of slack in it, a considerable degree in it, both in the labour market and capacity in general even after accounting for, as the bank has done since April of 2009 reconfirmed in October, even after accounting for the type of restructuring and productivity drags you get from that restructuring because of all the issues we've been talking about today. So that's a key element."

"We do see some potential for moderation on the wage side, that continuing that we have seen recently and that counterposed against strength in domestic demand factors balancing out."

"In terms of the exact path for inflation, it's not going to surprise you if I say we're going to work and update that in coming the weeks. A report on that on April 22 in the MPR so we (won't) get drawn directly on that right now. But there hasn't been and people should just take a step back, there hasn't been a fundamental change in the underlying dynamics here and those dynamics are pretty broad brushed. You know, pretty significant and it starts with an economy that has is just emerging from a very deep recession."

ON INFLATION IN MEDIUM TERM

"There's a host of factors that affect the medium term outlook for inflation, what we can influence and ... rates are as low as they can go, they're at emergency levels ... At some point they will change, but they will change consistent with achieving the medium term outlook. There's no magic data point and there's no simple signpost. That's why we've talked about this ... in terms of being conditional on that outlook. It's not the outlook for inflation next quarter, or next month. It's the outlook for inflation over the policy horizon."

ON NATURE OF RECOVERY

"The broad strokes of the recovery are as expected, slightly firmer, but as expected ... we're still not at that stage where we've had the rotation of demand in Canada and certainly haven't had the rotation internationally. So we haven't had the rotation from public to private and across economies internationally. That's the latter half of this year into 2011. That is one of the biggest determinants on the relevant outlook."

ON C$ AND THE INFLATION TARGET

"We haven't changed our way we look at the dollar. We look at the dollar as a key factor but one of many factors that affect the outlook for activity and inflation in Canada. In the end, that's why we're monitoring where the currency is, where other factors are, in order to achieve our inflation target."

ON CURRENCY VOLATILITY FOR BUSINESSES

"With respect to strategies to address currency strength, weakness, volatility, I have sympathies with elements of that research and other research on it where ... both global sourcing and global markets helps provide some natural hedges to that currency volatility and a number of firms have done that. That said, it's hard to totally insulate and there's not evidence that this is widespread yet and where there isn't evidence of progress is on productivity, which is one of the core responses to currency strength at a time when there is evidence of considerable productivity gains elsewhere."

ON THE ECONOMIC LANDSCAPE

"We have some great entrepreneurs in this country, past and present and I'm sure we will in the future and there have been pretty sizable changes in policy relatively recently so there could be some lags into response to that. What I think our job in part is to do is to point out when there have been sizable changes in the economic landscape. In our view, the bank's view, there very much have been sizable changes in the economic landscape which demand a quicker and deeper response on the part of business."

ON CONDITIONAL COMMITMENT TO HOLD RATES AT RECORD LOW

"We have to use different words to keep your attention. Look, nothing has changed about the conditional commitment. It is a view of the best path or first part of the path of interest rates in order to achieve the inflation target. Obviously as time goes on, the horizon of that commitment, the amount of time left in it, it shortens. But it's conditional on the outlook for inflation. We're going to update that outlook in April and take judgments about the appropriateness of that path."

ON THE NEED FOR HIGHER PRODUCTIVITY IN CANADA

"This was a seminal event, this recession. Things are different and it accelerated some changes and Canadian businesses are going to have to become more productive, if only to try to match the response of U.S. businesses to the recession, which ... have been much more aggressive and as a result are much more competitive."

ON EXCHANGE RATES

"An adjustment in real exchange rates is part and parcel of global rebalancing, first point. Second, what's at stake here is enormous in order of magnitude. And the adjustment of those real effective exchange rates of all major currencies is, as I say, an important component of that rebalancing. It's not the only component of that rebalancing." (Reporting by Ka Yan Ng, John McCrank, Claire Sibonney and Jennifer Kwan in Toronto, and Louise Egan, Randall Palmer and David Ljunggren in Ottawa; editing by Jeffrey Hodgson)