Canada's Carney says must ignore C$ impact on prices

OTTAWA, March 13 (Reuters) - The Bank of Canada should not be seduced by low consumer prices into cutting interest rates too much, since the low prices stem from the sharp appreciation of the Canadian dollar, Governor Mark Carney was quoted as saying on Thursday.

In an interview with the Financial Post newspaper after a speech in Toronto, Carney said Canada has been shielded from higher commodity prices because of an almost 20 percent rise in its currency last year, which lowers import prices on goods like cars and books.

But he said this was a one-time price level adjustment and that the effect on inflation would not continue unless the currency continued to strengthen.

"In the end though these are (price) level adjustments and you have to look through them," he said. "You can't be seduced by that exchange rate effect into managing policy too loosely," he was quoted as saying.

"Ultimately commodity prices ... are a function of demand and supply and I think I know where demand is going," he said.

The Bank of Canada cut its key overnight rate by 50 basis points earlier this month to 3.5 percent. In a press conference earlier on Thursday, Carney said he expects to cut rates further in April.

The bank has been able to comfortably slash lending rates in part because inflation has remained below its 2 percent target for several months. (Reporting by Louise Egan; Editing by Gary Hill)