Mark Carney, the Bank of Canada governor, has elected to hold the bank's benchmark interest rate steady at one per cent. (Nathan Denette/Canadian Press)

The Bank of Canada elected to hold its benchmark overnight lending rate steady at one per cent in its latest policy decision on Tuesday.

"The global economic recovery is proceeding at a somewhat faster pace than the bank had anticipated, although risks remain elevated," the bank said in a statement.

"Any further reduction in monetary policy stimulus would need to be carefully considered."

The statement gave no clear indication as to when the bank might start raising rates again.

After cutting the rate to a record low of 0.25 per cent during the recession, the central bank raised the rate in June, July and September before standing pat in its three policy decisions since then.

Economists were expecting the bank to not change the rate — especially after the federal government moved to cool the housing market further on Monday by tinkering with mortgage rules.

However, the C.D. Howe policy council recommended last week that the time had come to start edging the rate toward meeting a target of 2.5 per cent by the end of the year.

BMO economist Michael Gregory predicted in a commentary released after the announcement that the bank would resume increasing rates in May.

With the Canadian dollar already strong, he said the bank "is going to want to see a persistent" improvement in the U.S. economy to avoid any American downturn that would push the loonie higher and make Canadian exports less competitive.

On the other hand, Pascal Gauthier, senior economist with TD Economics, predicted the bank is more likely to hold off until July before increasing rates while it waits for the U.S. Federal Reserve to finish its massive program of bond buying aimed at stimulating the American economy.

The bank usually signals a move in rates ahead of time. Its next statement in March "will be crucial to help determine whether markets should reasonably expect that to be as early as the spring or in the summer," said Gauthier.

High dollar a worry

The bank signalled it is clearly worried about the Canadian dollar, which is trading over parity with the U.S. currency, and the low productivity of Canadian businesses.

In its last projection, the central bank expected the loonie to remain around the 98 cents US level. But the dollar has been trading above parity with its U.S. counterpart for all of 2011 so far. The loonie was trading 0.54 of a US cent lower, to 100.78 cents, on Tuesday.

The loonie slid on the interest rate news even as the U.S. dollar weakened against other currencies including the euro.

"The cumulative effects of the persistent strength in the Canadian dollar and Canada's poor relative productivity performance are restraining this recovery in net exports and contributing to a widening of Canada's current account deficit to a 20-year high," the bank's statement said.

The bank projects the economy will expand by 2.4 per cent in 2011 and 2.8 per cent in 2012 — a slightly firmer profile than had been forecast in October.

Core inflation is projected to edge gradually up to two per cent by the end of 2012, as excess supply in the economy is slowly absorbed.

The bank did not change its target date for when it expects the economy to return to full capacity from the end of 2012.

As well, the bank continued to stress that risks to the global recovery remain "elevated" because of large government debt buildups, particularly in Europe, and the poor financial positions of international banks.

The bank will issue a new comprehensive outlook on the economy on Wednesday, when its intentions over interest rates might become clearer.

With files from The Canadian Press