Bank of Canada sees rebound modest vs past ones

* Recovery under way, more modest than historical norm

* C$ impact on inflation target key factor in setting policy

* Canadian corporate balance sheets strong

TORONTO, Oct 25 (Reuters) - Canada's economic recovery is under way, but its pace will likely be more modest than rebounds from previous recessions, Bank of Canada Governor Mark Carney said on Sunday.

The head of the central bank said its plan to restore confidence in growth -- cutting rates to a record low and conditionally pledging to keep them there until the middle of next year -- was already taking effect.

"We're starting to see it work. Now, there's a long road ahead. I'm not going to paint you a rosy picture, to use your term. But we are on track at the start of a long road," he said in an interview with CTV's "Question Period".

He later added that the rebound is "not going to feel like a gangbusters recovery. But it is a recovery and that's important. And that will start to have an impact."

His comments came after the central bank on Oct. 20 confirmed its growth forecast of 3.0 percent for 2010, but cut its forecast for growth in 2011 to 3.3 percent from 3.5 percent. The bank warned good economic news was being undermined by a strong Canadian dollar. [ID:nN19231469]

Two days later Carney warned the central bank would use whatever tools it needed if the currency's drag on the economy threatened to keep it from returning the inflation rate to its 2 percent target. He noted foreign exchange intervention -- selling Canadian dollars on the forex market to drive the currency lower -- was "always an option". [ID:nN22502163]

Asked about the challenge posed by currency speculators, Carney said on Sunday the bank's focus was on its mandate to achieve its inflation target.

"We take everything into account, whether where the dollar is, where growth in the U.S. might be, strength in the domestic market, where commodity prices are. Put all those together. (Ask) how are they going to impact inflation? And then we set policy appropriately," he said.

The former Goldman Sachs executive said Canadian companies should prepare for a shift in demand on a relative basis from the United States to major emerging economies like China and said U.S. demand is likely to be more industrial than consumer focused going forward. He said the sound finances of many Canadian firms would help them cope with this change.

"Corporate balance sheets are in outstanding shape, outstanding shape, the best they've been in 25 years in this country," he said.

"They're going to have to reorient. They're going to have to find new markets. There's going to have to be some adjustment. It's going to be painful. But they're starting from a good position." (Reporting by Jeffrey Hodgson; Editing by Diane Craft)