The Bank of Canada kept its main interest rate unchanged and reiterated that an increase may be needed as domestic spending props up an economic recovery restrained by weak global demand for exports.

The country’s expansion will pick up through next year on business investment and consumer spending as shipments abroad lag, the Ottawa-based central bank said. The decision to remain at 1 percent, where the rate has been for two years, was forecast by all 27 economists surveyed by Bloomberg News.

“To the extent that the economic expansion continues and the current excess supply in the economy is gradually absorbed, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate,” policy makers led by Governor Mark Carney, 47, said in a statement today, echoing language used since April.

Today’s decision keeps Canada an outlier among Group of Seven nations with an inclination to raise borrowing costs while other central banks consider new stimulus. Carney has been saying since April that Canada has almost used up its spare economic capacity, and a report last week showed the economy expanded at a 1.8 percent annual pace in the second quarter, matching the central bank’s forecast.

“We continue to expect a longer wait for the first rate hike” with economic growth about about 2 percent too slow to bring the economy to full output next year, Canadian Imperial Bank of Commerce chief economist Avery Shenfeld wrote in a client note.

Near Potential

Canada’s economy remains “near its production potential” and prices for exported commodities have increased since July even with “slower global momentum,” the central bank said. The bank reiterated today exports won’t return to levels seen before the last recession until the start of 2014, citing in part the drag from the Canadian dollar’s “persistent strength.”

Canada’s currency weakened 0.3 percent to 98.89 cents per U.S. dollar at 9:14 a.m. in Toronto. One Canadian dollar buys $1.0112. Trading in overnight index swaps today showed 8 basis points of tightening had been priced in for the April 2013 decision, down from 19 late yesterday. The benchmark five-year federal government bond yield rose 1 basis point to 1.33 percent, with the price of the 1.5 percent coupon security due in September 2017 falling 7 Canadian cents to C$100.82.

Europe Recession

Europe is in a recession and growth in major emerging markets such as China has slowed more than policy makers anticipated, the central bank said today. There is a “modest” expansion in the U.S., which buys three-quarters of Canada’s exports.

The Bank of Canada sets interest rates to meet a 2 percent inflation target. Consumer prices, and the core measure that excludes eight volatile items, will reach that pace over the next 12 months, according to today’s statement.

The central bank forecast in July that inflation will “remain noticeably below the 2 percent target over the coming year” in part because of lower gasoline prices. Canada’s consumer price index advanced 1.3 percent in July from a year ago compared with a 1.5 percent gain the prior month, Statistics Canada said Aug. 17. The core rate increased 1.7 percent, the slowest since July 2011.

Canada’s outlook contrasts with the U.S., where Federal Reserve Chairman Ben S. Bernanke last week made the case for more easing to fight unemployment, and Europe, where European Central Bank President Mario Draghi may introduce a new bond- buying program to ease the region’s debt crisis.

Lowest Rate

Canada has the lowest policy rate of any major economy that has avoided the worst of the global financial squeeze that started in 2008, Carney said Aug. 22. The central bank predicted in July that output growth will accelerate to a 2.6 percent pace in the third quarter of next year, bringing the economy to full output in the second half of 2013. Today’s statement didn’t provide a detailed breakdown of economic growth rates.

Non-residential business investment rose at an annualized 9.4 percent rate in the second quarter, the fastest pace in a year and surpassing pre-recession levels for the first time, Statistics Canada reported last week. Calgary-based Enbridge Inc. (ENB), the largest transporter of Canadian crude to the U.S., began a series of pipeline projects in the second quarter, part of an C$8 billion ($8.1 billion) plan to boost shipments of Canadian and Bakken oil to new markets.

Finance Minister Jim Flaherty said last week he may offer new fiscal stimulus if global demand stumbles again. “What has been done before can be done again,” Flaherty said Aug. 31, adding that global weakness could also threatened his government’s plans to reduce its deficit.

Bloomberg