The federal government should lower interest rates to curb the surging loonie, which is hurting Ontario more than any other province, Premier Dalton McGuinty said on Wednesday.

The dollar's meteoric rise, which hit US$1.10 in morning trading, puts Ontario manufacturers and exporters at a significant competitive disadvantage in the global marketplace, McGuinty said.

The premier said the current federal interest rate policy caters to the "super-heated'' economies of western, oil-rich provinces rather than an economy like Ontario's, which has seen steady but more moderate growth.

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

McGuinty also called on retailers to lower their prices to reflect the strong loonie and prevent Ontario families from crossing the border and shopping in the United States.

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

While the dollar and the economy will be addressed in the Liberal throne speech when the legislature resumes sitting on Nov. 29, McGuinty said education remains the government's main focus.

Newly minted 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.''

Conservative Joyce Savoline, however, said the province has to do more to help to helping struggling manufacturers and prevent job losses.

"We just need a plan in place,'' Savoline said. "The economy is huge right now. We've gone through two recessions in the last 25 years ... We really can't go through that again.''

Premier considers merge with GST

McGuinty, meanwhile, said he would consider dropping the PST and harmonizing it with the GST.

He would only make the move if the federal government agrees to leave exemptions intact for basic goods such as heating oil, children's clothing and books, The Globe and Mail reports.

McGuinty is the first provincial leader to comment on Ottawa's call to harmonize their PSTs with the federal tax, the newspaper reports.

Quebec, Nova Scotia, New Brunswick and Newfoundland and Labrador already have a harmonized tax.

The federal government has said it is willing to offer help to provinces to ease the transition, but didn't specify if this would include compensation to make up for the revenue loss that would result, The Globe reports.

With files from The Canadian Press