The Bank of Canada – BOC - decided to leave its Benchmark interest rates today unchanged at 0.25% in line with expectations, since the Canadian economy is still recovering from the worst recession since WWII, with other major economies around the world.

The BOC signaled that global economies are undergoing recovery, where it is supported by the recent improvement in financial conditions and stronger domestic demand levels in several emerging markets around the globe; while the BOC also signaled that the outlook for global growth in 2010 and 2011 seems to be stronger than their prior projections back in October.

The BOC expects the Canadian economy to continue growing during the fourth quarter of 2009, where the economy is expected to have expanded further amid the recent improvement in economic activity. Moreover, the BOC signaled that price pressures started to increase over the past few months, where CPI rebounded into positive territories, while core inflation increased slightly above expectations.

Yet, the BOC still believes that there’s huge slack in economic activity, where the BOC estimated that the economy was operating about 3.25% below its production capacity in the fourth quarter of 2009; however, the BOC still expects the Canadian economy to return back to its long term growth potentials by the third quarter of 2011.

The BOC indicated that interest rates will probably remain unchanged through the second quarter of 2010, while the BOC also highlighted that risks to inflation haven’t changed from the October meeting, when the BOC judged that upside risks to inflation are represented through a stronger than projected global and local demand, while downside risks are represented through a more protracted global recovery and persistent strength of the Canadian dollar, where both would weigh down on economic activity as well as prices.

The Canadian economy seems to be on its way to recover from the worst recession since WWII; however, it will take a long time before the Canadian economy can fulfill its long term growth potentials.