The Canadian Press

CIBC is warning that Canada’s industrial base could be hollowed out if the Bank of Canada doesn’t do something about the dollar.

The warning from the chief economist at CIBC (TSX:CM) comes at a time when the central bank is holding out the possibility of intervening to rein in the strong loonie.

The Bank of Canada hasn’t recently used its power to buy and sell huge quantities of Canadian dollars and other currencies to affect the loonie’s value, although it has done so in years past.

CIBC economist Avery Shenfeld says central bank governor Mark Carney should intervene during extreme fluctuations of the Canadian dollar.

Shenfeld says a strong loonie has some benefits but they’re outweighed by the long-term damage that would be caused by an over-valued currency.

He says Canadian manufacturing plants that can’t compete with a persistently overvalued currency could be forced to close, and won’t come back even if the loonie returns to fundamentals.

The CIBC report was released a few hours before Carney was to appear before a parliamentary committee to discuss the currency.

High loonie key hurdle for Canadian exporters

As well, the Export Development Corporation issued its own report on Tuesday warning that a US95¢ dollar could lop off two-to-three percentage points off growth from the Canadian economy next year.

The Crown corporation says it expects exports to increase 6% next year, but that is a minor improvement given that 2009 will see a 29% tumble from what Canada sold to the world last year.