The Canadian dollar made gains against the U.S. greenback Monday following comments on the weekend by Bank of Canada governor Mark Carney.

The loonie closed up 0.54 of a cent to 102.40 cents US.

Carney warned in a speech during the annual meeting of the Inter-American Development Bank in Calgary on Saturday that commodity prices could continue to increase for decades and encouraged central banks in emerging markets not to delay raising interest rates because inflation pressures will only worsen.

"Everything else being equal, higher commodity prices usually necessitate higher policy rates," he said.

"Even though history teaches us that all booms are finite, this one could go on for a long time."

"It was not quite the warning of doom and gloom," Vancouver-based Citizens Bank said in a commentary Monday, "but it wasn't far off."

Rates may rise after election

Carney's strong warning about price increases suggested Canadian interest rates may not be on hold much past the federal election on May 2.

"Bringing that message back to Canada — even if the Fed stays on hold through 2011, look for the Bank to start responding to rising commodity price pressures before long." BMO economist Douglas Porter said in a commentary.

The next scheduled announcement on interest rates from the Bank of Canada is April 12 and the central bank isn't expected to move on raising rates from one per cent. The next announcement is on May 31.

Carney also warned about the particular risk of inflation in emerging economies. The continuing global commodity price increases he predicts — along with the enormous amount of foreign capital looking for a home in booming emerging economies — risks driving up inflation in those regions.

Carney warned those countries against constraining capital flows or foreign exchange moves as a means to deal with those challenges.

"Some economies are postponing monetary tightening in the hope that old relationships will reassert. Others are resisting capital inflows," Carney said. "And all appear to be underestimating the scale of what's happening."

"And here lies the risk of another crisis."

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Protesters rally against high food prices, unemployment and corruption in New Delhi on March 14. Carney encouraged central banks in emerging markets not to delay raising interest rates saying inflation will only worsen. ((Mustafa Quraishi/Associated Press))

Avoiding more major economic upheaval, he said, will require "leadership, purpose and legitimacy."

Longer-term, he advocated "nothing less than the refounding of the international monetary system, which has degenerated into an increasingly dysfunctional hybrid of fixed and floating regimes."

One route is to enforce rules at the World Trade Organization, an option Carney called "divisive."

"A much more constructive approach, favoured by Canada, is to renew the rules of the game so that country actions are both predictable and mutually consistent," he said.

Carney's remarks came as Western Hemisphere finance ministers held their yearly meeting.

Canadian Finance Minister Jim Flaherty said he and his counterparts did not reach any conclusions about some of the challenges Carney highlighted in his speech.

"We had discussions certainly involving some of the ministers and the international financial institutions about the pros and cons of interfering with capital flows and there are differing points of view on that," Flaherty said as the federal election campaign kicked off.

"This forum of finance ministers is not designed as a forum where we will make decisions that are binding on other countries, including ourselves, about any particular issues. It is an important forum for discussion and sharing and planning."

Commodities back off

The loonie's rise came even as commodity prices backed off. April oil prices fell $1.42 to $103.98 US a barrel on the New York Mercantile Exchange.

The April gold contract fell $6.30 to $1,419.80 US.

That won't last for long, according to an analysis released Monday by Scotia Economics. The bank suggested Japan's nuclear crisis could have a lasting impact on demand for commodities.

It noted Japan is already turning to imported liquefied natural gas (LNG) and crude oil to offset the loss of nuclear power generation.

"Given little damage to LNG import terminals, except one at Sendai, and underutilized capability at natural gas-fired plants, Japan has already arranged increased LNG imports for April mostly to supply power to the Tokyo metropolitan area as well as the Northeast from a variety of sources," economist Patricia Mohr said in the analysis.

And lumber demand, she predicted, will benefit B.C. and Alberta forest products companies.

"While it will take several months for Japan to map out its plans for re-construction," said Mohr, "the Japanese government has already contacted wooden prefabrication plants in Japan to quickly build a large volume of factory-built homes as temporary dwellings in devastated areas. Construction of permanent homes will come later."

The loonie may also have been helped as traders anticipate Thursday's release of the latest data from Statistics Canada on Canadian economic growth in January.

Many economists expect the economy grew by 0.5 per cent, the same as the previous month. That would be the fourth straight month of accelerating activity.

With files from The Canadian Press