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The Bank of Canada left its benchmark overnight rate at a record low 0.25%

OTTAWA (Dow Jones)--The Bank of Canada left its benchmark overnight rate at a record low 0.25%, and held to its explicit commitment to keep it at that level
until the middle of next year provided inflation stays tame.
And it warned that the "unprecedentedly rapid" gain in the Canadian dollar could, if it persists, "fully offset" the recovery in financial conditions and confidence seen in recent weeks. The reference to the Canadian dollar was prompted by the currency's rapid spike to eight-month highs in recent sessions.
"Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target," the central bank said in a
statement on its interest-rate decision.
It said financial conditions and commodity prices have improved "significantly" in recent weeks and consumer and business confidence have
recovered "modestly".
"If the unprecedentedly rapid rise in the Canadian dollar proves persistent,
it could fully offset these positive factors," the Bank warned. It said the Canadian dollar's gains reflect a combination of higher commodity prices and generalized U.S.-dollar weakness.
The Bank said underlying macroeconomic risks are "roughly balanced but overall risks to its inflation projections remain "tilted slightly to the downside".
With interest rates near zero, the Bank reiterated that it has "considerably flexibility" to conduct monetary policy at low rates, a reference to the fact that it can resort quantitative or credit easing.
The Bank said information received since its April 23 Monetary Policy report is "broadly consistent" with its medium-term outlook for output and inflation. It still expects global and Canadian recoveries to more muted than usual.
The rate decision wasn't a surprise because the Bank committed to keep at 0.25% through June 2010 when cut it to that historic low level at the previous policy decision on April 21.
The Canadian dollar rose after the policy decision was published at 9:00 a.m. EDT. The U.S. dollar fell to C$1.1051 from C$1.1058 just before the release.