The Bank of Canada announced on Thursday that it is maintaining its target for the overnight rate at 0.25%, and reiterated its conditional commitment to hold the rate at its current level until mid-2010.

In its regular interest rate announcement, the bank said it would leave the Bank Rate unchanged at 0.5% and the deposit rate at 0.25%. The announcement was in line with economists’ expectations.

“We are of the view that the Bank of Canada will keep to its current policy stance and only revert to implementing non-traditional measures if a serious threat to the economy recovering later this year materializes,” said Dawn Desjardins, assistant chief economist at RBC Economics Research

Information received since the bank’s Monetary Policy Report in April is broadly consistent with its medium-term outlook for output and inflation in Canada, according to the central bank.

“The economy is undergoing major restructuring in a number of sectors,” the bank said. “The already significant output gap will continue to widen through the third quarter, putting downward pressure on inflation.”

The central bank continues to expect that the global and Canadian recoveries will be more muted than usual.

It acknowledged that in recent weeks, financial conditions and commodity prices have improved significantly, and consumer and business confidence have recovered modestly. But if the rapid rise in the Canadian dollar continues, it could fully offset these positive factors, the bank said.

Economists at the Royal Bank of Canada do not expect the loonie’s upward momentum to persist. “Our assessment is that the Canadian dollar will likely give back some of its recent gains as the impact of the recent burst of risk appetite wanes and the U.S. dollar stages a modest recovery,” said Desjardins.

The Bank of Canada reiterated its conditional commitment to hold the current policy rate until the end of the second quarter of 2010 in order to achieve the inflation target.

“The outlook is subject to considerable uncertainty,” the bank said. “While the underlying macroeconomic risks are roughly balanced, the Bank judges that, as a consequence of operating at the effective lower bound, the overall risks to its inflation projection remain tilted slightly to the downside.”

The bank’s next announcement on the overnight rate target is scheduled for July 21.