The Bank of Canada is cutting its expectations for economic growth this year as it keeps its key interest rate target on hold at 0.25 per cent.

The central bank says it expects the economy to grow 6.0 per cent in 2021, down from its previous forecast of 6.5 per cent.

However, the bank now expects growth of 4.6 per cent in 2022, up from its earlier forecast of 3.7 per cent.

The bank says economic conditions have improved enough that it will reduce its weekly purchases of federal bonds to $2 billion from $3 billion.

The purchases are a stimulus measure designed to help drive down rates charged on mortgages and business loans.

The Bank of Canada also expects inflation to run above three per cent for the rest of the year because of higher gasoline prices and service businesses raising prices as demand returns.

In a statement, the central bank says the factors pushing up inflation are likely to be short-lived, but will be closely monitored in case they become persistent or grow.

The bank says it will keep its trend-setting rate at near-zero until the economy is ready to handle an increase in rates, which it doesn鈥檛 expect to happen until the second half of 2022.

With public health restrictions lifted partially or entirely across the country, the central bank now expects consumers to start spending more, including the $200 billion in savings Canadians accumulated during the pandemic.

The bank鈥檚 updated economic outlook also says spending shouldn鈥檛 be affected by a decline in federal aid as it expects more people getting back to work, meaning they earn more and offset declines in government assistance.

The Canadian Press

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