The Bank of Canada left its key interest rate unchanged on Tuesday, as expected, but trimmed its medium-term outlook for the economy.

The central bank's overnight lending rate has remained at 4.25 per cent since May, following nine hikes of a quarter of a percentage point.

The bank has lowered its 2006 growth forecast to 2.8 per cent from its earlier forecast of 3.2 per cent. Its 2007 outlook was also cut to 2.5 per cent from 2.9 per cent. The 2008 growth forecast remained unchanged at 2.8 per cent.

"This growth profile implies that the small amount of excess demand now in the economy will be eliminated by the second half of 2007…," the bank said.

The overall rate of inflation is expected to average about 1.5 per cent through the second quarter of 2007, before returning to two per cent and remaining there through the end of 2008, the bank added.

Economists said the central bank is suggesting that it's likely to stand pat on rates for a while yet.

"Taking both the economic growth and inflation forecast together, the bank reaffirmed their message that the current level of the overnight rate is consistent with inflation remaining on target over the medium term," said TD Bank economist David Tulk in a morning commentary.

"So despite the fact that the outlook for economic growth has been downgraded, the bank has signalled its intention to remain on hold for the foreseeable future," he wrote.  

On Thursday, the central bank will offer more details on its revised economic outlook when it releases its semi-annual monetary policy report. The bank's governor, David Dodge, will also speak to reporters that morning and appear before the House of Commons finance committee in the afternoon.

The central bank's next decision on interest rates is due Dec. 5.