TORONTO (Reuters) - Bank of Canada Governor David Dodge reaffirmed on Tuesday that the central bank may need to raise interest rates again, but said that recent wage gains were "appropriate" due to the economy's performance.

"What we said in our last press release, we meant exactly what we said. We think that under the scenario that is set out that there may be need for further modest increase in interest rates," Dodge told a media briefing in Toronto.

Dodge said the 2006 domestic inflation outlook published in January still looks appropriate, and that he sees core inflation just under 2 percent in 2006 and overall inflation just over 2 percent.

The bank raised its overnight interest rate to 3.75 percent on March 7, its fifth straight hike, as it tries to stave off inflation in an economy it says is operating at capacity. The bank makes its next rate move on April 25, and is expected to raise it another quarter percentage point.

Tuesday's briefing was unusual because Canadian central bankers typically only meet the media after a speech or the release of a report, and it caused some market apprehension as traders tried to guess if there was a hidden agenda.

The bank said it normally plans speaking schedules for the governor and deputies between release of its economic assessment reports, the latest of which, the Monetary Policy Report Update, came out in January. But none were arranged for the late winter because the bank had expected a federal election in February or March. The election was actually held on January 23.

None of the comments at the briefing seemed to unnerve central bank watchers.

"Aside from a few small snippets, Mr. Dodge could have transmitted exactly the same message by stating that 'nothing of substance has changed since the (Monetary Policy Report) Update', and leaving it at that," said Marc Levesque, chief strategist at TD Securities. Levesque still expects one more rate hike, which he says will likely be the last of the cycle.

Dodge said recent wage increases in Canada were appropriate as labor productivity has also been increasing. He also said he expects improved productivity through 2006 and 2007.

He noted that Canada is now more able to absorb regional differences in economic strength than it has been in the past because the economy is more flexible and workers are more willing and able to relocate from weaker to stronger regions.

Canada's tight job market has spurred concern that rising labor costs could push inflation higher and prompt the central bank to lift interest rates further.

Dodge also said that wage increases in the booming western provinces of Alberta and British Columbia didn't seem to be affecting wages elsewhere.

C$ BACK IN RANGE

When it raised rates in March, the Bank of Canada mentioned that the Canadian dollar had risen more than the bank had assumed in its January economic assessment.

But on Tuesday, Dodge said the currency was now "bang in the middle" of the 85-87 U.S. cent band the bank had set out in January. The currency finished the session at C$1.1640 to the U.S. dollar, or 85.91 U.S. cents.

But he said the global economy in 2006 looks a touch stronger than the bank had anticipated.

"As we get out to 2007 and beyond, for global economy, we do see potential downside risks. On the other hand, in the short run, we think that the risks are balanced," he said.