The Bank of Canada (BOC) held its benchmark target for the overnight rate steady at 1.0 percent, as widely expected, and confirmed its current guidance that the "timing and direction of the next change to the policy rate will depend on how new information influences the balance of risks."
Despite a faster-than-expected rise in the April inflation rate to the central bank's 2.0 percent target, the BOC said the downside risks to inflation remain as important as before given the slightly higher risks to economic growth.
Canada's inflation rate jumped to 2.0 percent in April from 1.5 percent the previous month, but the BOC said this was largely due to the temporary effect of higher energy prices and the pass-through effect from a lower exchange rate of the Canadian dollar.
The BOC noted that core inflation only rose to 1.4 percent in April from 1.32 percent with the increase partly due to exchange rate movements.
The BOC, which has maintained its rate since September 2010, voiced some concern over first quarter global economic growth, which it said was weaker than it had expected and this had given a greater weight to downside risks.
Although the U.S. economy is rebounding after a pause in the first quarter, the BOC said the underlying momentum could be slightly weaker than previously expected.
A decline in long-term global bond yields partly reflect expectations in financial markets that interest rates will remain low over the long term and this, together with buoyant stock markets and tight credit spreads, indicates that financial conditions remain very stimulative.
As in the United States, economic activity in Canada was hit by severe weather, with its Gross Domestic Product expanding by only 0.3 percent in the first quarter from the previous quarter for annual growth of 2.22 percent, down from a rate of 2.66 percent in the fourth quarter.
But the BOC said the ingredients for higher exports remain in place, including a lower Canadian dollar and the anticipated strengthening of foreign demand. Better corporate profits, especially in sectors that are sensitive to the exchange rate, should also support higher investment by businesses.
In its April economic outlook, the BOC forecast growth averaging about 2.5 percent this year and next year before easing to around 2.0 percent in 2016, the economy's potential growth rate.
Annual growth in the first quarter was forecast at 2.3 percent, then 2.4 percent in the second and third quarters, and 2.3 percent in the fourth quarter of 2014.
In July the BOC will issue its next economic forecast in its monetary policy report.
In 2013 Canada's GDP averaged 2.0 percent, up from 1.7 percent in 2012.
The BOC has long been concerned over high household debt, but repeated that there are still signs of a soft landing in the housing market and "a constructive evolution of household imbalances."
Nevertheless, it maintained that the risks from high household debt "remain elevated."
The BOC in April forecast headline inflation of 1.3 percent in the first quarter of this year, 1.6 percent in the second quarter, 1.8 percent in the third quarter and 1.9 percent in the fourth quarter. Core inflation was forecast at 1.2 percent in the first quarter, 1.2 percent in the second quarter, 1.4 percent in the third quarter and 1.6 percent in the fourth quarter.
The Canadian dollar started weakening against the U.S. dollar in September 2012, sliding from 0.97 to the U.S. dollar to 1.124 by March 19 this year, a drop of almost 14 percent. Since then it has rebounded slightly to trade at 1.09 today, but is still down 2.8 percent since the start of this year.
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