Toronto: Canada maintained its key lending rate at one percent Wednesday, warning that the economy of key partner the United States is "softer than expected" and growth in emerging markets has slowed.
Therefore, the Bank of Canada said in a statement, the outlook "is now slightly less favorable for Canada."
The central bank die note that Europe`s nascent recovery has been unexpectedly strong while China`s economy has shown renewed momentum.
And it forecast US growth would accelerate through 2014 and 2015.
But slower growth and tightened credit in many emerging markets will continue to be a drag on the global economy, which, according to the bank, will grow by 2.8 percent in 2013 and accelerate to 3.4 per cent in 2014 and 3.6 per cent in 2015.
Continued global uncertainty is delaying a pick-up in Canadian exports and business investment, "leaving the level of economic activity lower than the bank had been expecting."
Canadian household spending remains "solid," but the Canadian economy is now not expected to return to full production before the end of 2015.
Meanwhile, heightened retail competition with new US and European stores coming to Canada, and "significant slack in the economy" combined to curb inflation -- currently 1.1 percent.
The bank said it is concerned about Canada`s persistently low inflation and fears a rate hike now would risk "exacerbating already-elevated household imbalances."
"Weighing these considerations, the Bank judges that the substantial monetary policy stimulus currently in place remains appropriate and therefore has decided to maintain the target for the overnight rate at 1 per cent," it concluded.