The Bank of Canada says it will be holding its key interest rate unchanged at 0.25%.

The rate has been kept on hold at its rock-bottom level since the onset of the pandemic, and the central bank has said it won't increase the rate until the economy has recovered.

The central bank says that there remains considerable excess capacity in the Canadian economy and that the recovery continues to require extraordinary monetary policy support.

"We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2% inflation target is sustainably achieved," reads a release from the Bank.

Based on the Bank’s April projection, this is slated sometime in the second half of 2022.

READ: Policymaker’s New Measures Not Enough to Balance Canada’s Housing Market: RBC

Despite the second wave of the virus, the Bank says first-quarter GDP growth came in at a robust 5.6%. While this was lower than what the Bank had projected, thanks to stronger-than-expected household spending and more imports over the first three months of the year, it points to rising consumer confidence and resilient demand.

The Bank says it expects the Canadian economy to rebound strongly starting this summer as vaccinations proceed at a faster pace and provincial governments ease economic restrictions.

The Bank says Consumer Price Index (CPI) inflation has risen to around the top of the 1-3% inflation-control range, mainly due to base-year effects and much stronger gasoline prices. Core measures of inflation have also risen, primarily owing to temporary factors and base year effects, but by much less than CPI inflation.

While CPI inflation will likely remain near 3% through the summer, it is expected to ease later in the year, as base-year effects diminish and excess capacity continues to exert downward pressure.

"Inflation has risen to the top of the acceptable range, but the Bank is expecting inflation to ease in Q3 and Q4. If the inflation numbers come in as anticipated, then consumers should continue to have confidence that the Bank will not move rates up ahead of schedule," said James Laird, co-founder of and President of CanWise Financial mortgage brokerage.

"If the inflation numbers do not ease, or worse, continue to rise, then the Bank will be forced to consider moving rates up before they hit their employment rate targets. Going forward the most notable factors to watch are the employment rate and inflation," said Laird.

"Anyone who currently has a variable rate mortgage should be pleased that the Bank is still pointing to the second half of 2022 as the most likely time to move the key overnight rate up,” added Laird.

The Bank says it will continue its quantitative easing program to keep interest rates low across the yield curve.

"Decisions regarding adjustments to the pace of net bond purchases will be guided by Governing Council’s ongoing assessment of the strength and durability of the recovery. We will continue to provide the appropriate degree of monetary policy stimulus to support the recovery and achieve the inflation objective," said the Bank.