The Bank of Canada kept its main interest rate unchanged for an 11th consecutive meeting and said economic growth will be "more modest" amid a weaker outlook for the United States and Europe.

The Ottawa-based central bank left the target for overnight loans between commercial banks at 1 percent, where it has been since September 2010, as forecast by all 26 economists surveyed by Bloomberg News.

The rate pause is the longest since the central bank adopted the overnight target as its policy rate in 1994, and longer than the "conditional commitment" to hold it at 0.25 percent that lasted from April 2009 to June 2010. European governments are struggling to manage a fiscal crisis and U.S. growth will also be hampered by the need to pare debts, the Bank of Canada said today.

"While the 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 envisaged, largely due to the external environment," policy makers led by Governor Mark Carney, 46, said in a statement. "There is considerable monetary policy stimulus in Canada," the central bank said, echoing its previous decision.

The Canadian dollar hung onto gains after the announcement. The currency was trading at C$1.0131 per U.S. dollar at 7:08 a.m. Mountain, from 1.0179 on Monday. One Canadian dollar buys 98.71 cents.

Canada's economy, the world's 10th largest, will expand 2 percent this year and 2.8 percent next year, compared with an October forecast for expansions of 1.9 percent and 2.9 percent, the bank said. The estimate of 2011 growth was increased to 2.4 percent from 2.1 percent.

"The bias is still just to keep rates on hold for the foreseeable future," said Mazen Issa, Canada macro strategist at TD Securities in Toronto "As long as these external headwinds persist the bank doesn't have any incentive to take rates higher."

Carney, who was named chairman of the Financial Stability Board in November, will hold a press conference tomorrow after releasing a detailed forecast in a Monetary Policy Report.

The European Central Bank, Norway and Australia cut interest rates last month to stem the damage from slowing global growth, and Canada's six-month overnight index swap rate of 0.959 percent yesterday signals some investors are betting on a similar move in the first half of this year.

European leaders have spent two years working to stem their crisis. Standard & Poor's reduced the credit ratings for nine of 17 European countries including France, Italy and Spain on Jan. 13.

"The Bank continues to assume that European authorities will implement sufficient measures to contain the crisis, although this assumption is clearly subject to downside risks," the Bank of Canada said. "The Bank expects the U.S. recovery will proceed at a more modest pace going forward, owing to ongoing household deleveraging, fiscal consolidation and the spillovers from Europe."

Carney's interest-rate freeze comes even as inflation exceeds his 2 percent target. Consumer prices rose 2.9 percent in November from a year earlier, Statistics Canada said Dec. 20. The average monthly gain in consumer prices through November was 3 percent, on pace for the highest average pace since Canada adopted inflation targets two decades ago.

The central bank predicted in October inflation will slow to 1 percent by the middle of this year. Today, the bank said that the economy will return to full output and the pace of price increases will accelerate back to its 2 percent target in the third quarter of 2013, one quarter earlier than it had forecast.

Some Canadian executives also say that the recovery may be curbed by events abroad, including the U.S., which buys three- quarters of Canada's exports. RealtyTrac Inc., an Irvine, California-based data vendor, said Jan. 12 that banks may seize more than 1 million U.S. homes this year, a 25 percent increase.

Canada's consumers have been steady, Rogers Communications Inc. Chief Executive Officer Nadir Mohamed said on a conference call last month, adding "we're not going to be immune to what's happening in the rest of the world, Europe and the U.S."

The Canadian dollar's "persistent strength" also remains a challenge to exporters, the central bank said again today.

Finance Minister Jim Flaherty, who has ended a two-year government stimulus program, said last week he will consider new initiatives if there is new major slowdown. On Nov. 8, Flaherty pushed back his target for eliminating Canada's deficit by a year to 2015 because slower growth will erode revenue.

The Bank of Canada on Tuesday also reiterated that household debt will keep rising to records, after reaching 153 percent of disposable income in the third quarter. The bank said last month consumer debt is the main domestic risk to financial stability.