The Bank of Canada left its key interest rate unchanged at 4.25 percent on Tuesday, citing controllable inflations and optimistic economic outlook this year.

Analysts had predicted the bank would hold its ground in this announcement, although many predict a rate cut will come before summer. The bank last changed the rate eight months ago, when it raised it a quarter of a percentage point.

The central bank said it does not need to tinker with the rate because inflation is running largely as expected and economic growth should pick up in the first half of this year.

It said there are signs that the troubles in the U.S. auto and housing industries, which hurt Canadian exports last year, are playing out.

"Accordingly, the bank projects that economic growth in Canada will pick up to about 2.5 percent in the first half of 2007 and that the economy will continue to operate near its production capacity throughout 2007 and 2008."

While overall inflation is a bit lower than predicted and the core inflation rate, which discounts volatile items and changes to indirect taxes, is running slightly above predictions, the bank said they should smooth out in the next six months.

"Total CPI inflation should average just above one percent in the first half of 2007, returning to the two percent inflation target in early 2008," it said in the statement accompanying the rate announcement. "Core inflation should return to two percent in the first half of 2007 and remain there.

Source: Xinhua