Canada's central bank held its key lending rate at 0.25 percent on Wednesday, saying it expects a "slow and choppy" recovery from pandemic woes.

With inflation at near zero, it also vowed to keep interest rates relatively low until slack in the economy is absorbed and prices creep back up in line with its 2.0 percent target.

The central bank's decisions were widely anticipated by analysts.

In a statement, the Bank of Canada said that recent economic data as Covid-19 restrictions are eased "is encouraging."

But it added that it expects "the recuperation phase to be slow and choppy as the economy copes with ongoing uncertainty and structural challenges."

Canada's gross domestic product (GDP) fell by just over 13 percent in the first half of the year.

Activity in July appears to be faster than anticipated, the bank said.

The Bank of Canada says it expects a "slow and choppy" recovery from pandemic woes
The Bank of Canada says it expects a "slow and choppy" recovery from pandemic woes AFP / GEOFF ROBINS

That was partly attributed to greater household spending "reflecting pent-up demand" for goods and housing, it said.

There has also been "a large but uneven rebound in employment" following an all-time high in the jobless rate in May of 13.7 percent, the bank said.

Exports are rising but remain below pre-pandemic levels, and business confidence and investment are still subdued, it added.

Around the world, economic activity is picking up as countries lift measures implemented to curb the spread of the new coronavirus.

But the Bank of Canada forecast a "protracted and uneven" rebound that will continue to be "heavily reliant on policy support."

Ottawa has doled out some Can$300 billion (US$228 billion) in emergency aid to Canadians over the past five months.

The pace of the economic recovery will depend heavily on the path of the pandemic as well as government responses to contain the virus, the bank said.