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TORONTO - The loonie's meteoric rise and Canada's current interest-rate policy may suit the "super-heated" oil-rich economies of Western Canada, but they're hurting Ontario, Premier Dalton McGuinty said Wednesday as he called on the federal government to cut the cost of borrowing money.

The loonie briefly broke the US$1.10 barrier in morning trading as McGuinty complained that a strong dollar puts Ontario manufacturers and exporters at a huge competitive disadvantage in the global marketplace.

He called on retailers to lower their prices to reflect the continuing strength of the Canadian dollar, and urged Ottawa to take Ontario into account when it sets monetary policy.

"Right now, by and large, we have an interest-rate policy which is designed to cater to a super-heated petro-dollar originating from economic activity taking place in Alberta and Western Canada generally," said McGuinty, adding Ontario's economy in contrast has seen steady but more moderate growth.

"The high dollar is hurting us much more so than it is Western Canada. From an Ontario perspective, we would benefit from an interest-rate reduction - something that makes the Canadian dollar less attractive on the international market."

Canadian manufacturers have been calling for an interest-rate cut as well, arguing that every cent the dollar rises above parity with the American dollar costs them $1.5 billion annually.

In Newfoundland, Premier Danny Williams offered qualified support for McGuinty's call to cut interest rates. The high dollar is having a huge effect, particularly in Ontario, said Williams, calling it a "national problem."

"There's a point now where it's starting to create some significant problems in all the provinces and as well for Canada generally," he said. "So (the federal government) may have to look at some monetary policy that can at least try and get it under control."

But there is a flip side to a high loonie, McGuinty said. Ontario families should see their money go a lot further than before, and people will shop in the U.S. for bargains if they don't see better deals at home, he added.

"They have ... limited money coming into the house, and you want to make those dollars go as far as you possibly can," McGuinty said.

"There are still cases where lower costs have yet to translate into lower retail prices in Ontario. I would urge Ontario retailers to do what ultimately is in their self-interest. If Ontarians can't find the deals here, they're going to look elsewhere."

The rising loonie and the province's economy will be an element of the Liberal throne speech when the legislature resumes sitting Nov. 29, but education remains the government's central focus, McGuinty said.

Finance Minister Dwight Duncan said the government predicted the rise in the dollar in its last budget, but admitted they didn't see it hitting US$1.10.

"The rapid rise has caught many analysts off guard and it will affect the manufacturing sector, there is no question," Duncan said. "We've taken measures in past budgets and we'll continue to work with the manufacturing sector."

Jayson Myers, president of Canadian Manufacturers and Exporters, said an interest-rate cut would take some pressure off the dollar and help ease the strain on manufacturers who are losing money daily because they can't adjust their costs fast enough.

"We haven't seen the full impact," he said. "We're only beginning to see the losses come through now. ... The Bank of Canada should be looking ahead and not backward and should be taking the opportunity to reduce interest rates."

But Don Drummond, chief economist at TD Bank Financial Group, said McGuinty's call for an interest-rate cut isn't likely to sway the Bank of Canada since it has to take more than Ontario's economy into account.

Overall, the national economy is doing well with a record low unemployment rate and 63,000 jobs added in October, Drummond said. Even if the Bank of Canada cut interest rates by a whopping one per cent, Drummond said it wouldn't make that much of a difference to the value of the dollar.

"It might only take three or four cents off the Canadian dollar," he said. "The momentum is coming from global factors - the weakening of the U.S. dollar and the strength of commodity prices. Interest rates have been a fairly minor influence."

If Ontario wants to mitigate the impact of the high dollar on manufacturers, Drummond said it should cut corporate taxes and accelerate the phase-out of the capital tax.

Progressive Conservative Leader John Tory echoed McGuinty's call for an interest-rate cut.

But he said Ontario has to do more in the meantime than point the finger at the federal government.

"He should be looking for every opportunity, especially with a $2.3-billion surplus in hand, to reduce taxes," Tory said. "You haven't heard him volunteer up anything that he can do."

NDP Leader Howard Hampton said McGuinty should stop playing the "blame game" and get serious about saving manufacturing jobs by appointing a jobs commissioner