Photo: The Canadian Press. All rights reserved.

A pedestrian walk along Wellington Street past the Bank of Canada in Ottawa on Tuesday, January 17, 2012. The Bank of Canada announced Tuesday that it will be leaving the key interst rate unchanged at 1%. THE CANADIAN PRESS/Sean Kilpatrick

OTTAWA - The Bank of Canada is keeping interest rates at historic lows, likely for another year, even as it concedes that bargain-basement borrowing costs will lure households even deeper into debt.

As expected, the central bank kept its trendsetting policy rate at one per cent Tuesday, even thought the effect will be something it has repeatedly warned about — higher levels of consumer spending, the piling on of debt and elevated house prices.

But in a gloomy new assessment of economic conditions, the bank implies it has no choice.

In a statement accompanying the announcement, the bank warned that global economy has, if anything, "deteriorated" since its last forecast in October and that risks arising from the European debt crisis have intensified.

For Canada, the global weakness will restrain exports and business investment.

"While the (Canadian) economy had more momentum than anticipated in the second half of 2011, the pace of growth going forward is expected to be more modest than previously envisioned," the bank's policy council, headed by governor Mark Carney, reported.

Economists said the tone of the report likely means the bank won't move to raise interest rates until 2013, and the CIBC said it doesn't expect rates to rise until as late as 2014.

"The Bank of Canada is caught between a rock and hard place," said Derek Holt, Scotiabank's vice-president of economics.

"They cannot tailor monetary policy to address a specific problem, which is elevated house prices, and at the same time (Carney) has to weigh that against the bigger macro picture, which is the total global risks. I think he's doing the right thing by straying toward global risks."

The Canadian dollar rose 0.36 of a cent to 98.59 cents US after the announcement as investors assessed the odds of a rate hike in the near future had diminished, while the odds of a rate cut might have increased.

The World Bank, in a new forecast, also said Tuesday that it believes the global economy is braking, both within the emerging and developed economies. Global growth will average only 2.5 per cent this year, the institution said in a statement from Beijing, with the developed world crawling along at 1.4 per cent.