The Bank of Canada today kept its key overnight rate unchanged for the sixth straight session, at 4.25%. Most economists had expected the move.

The operating band for the overnight rate is unchanged, and the Bank Rate remains at 4.5%.

The central bank said Canadian and global economies are evolving “broadly in line” with its expectations laid out in January.

“Despite recent volatility in global financial markets, the bank continues to judge that the risks to its inflation projection are roughly balanced,” the bank said.

The main downside risk is still that growth in the U.S. economy could be lower than expected. The main upside risk is still that household spending in Canada could be stronger than expected, “largely because of borrowing against increased home equity,” the statement said.

The Bank of Canada’s next scheduled date for announcing the overnight rate target is April 24.

Economists remain divided on the future direction for rates.

RBC Capital Markets noted that today’s accompanying policy statement provides little new information on the future for monetary policy, “the economy is tracking the Bank’s forecasts and the risks are still in balance. Recent financial market volatility is mentioned but not acknowledged as a major risk to the forecast with the Bank of Canada following the lead of other major central banks,” it says.

TD Bank says that the statement, “reinforced all of the familiar themes: the Canadian economy continues to operate at or just above its productive capacity and that the current level of the overnight lending rate is appropriate for keeping inflation at the 2% target over the medium term. Suffice to say, the Bank appears more than happy to remain on the sidelines.”

National Bank Financial agrees that there were no big surprises in the Bank’s statement. “Volatility in financial markets and disappointing U.S. economic data notwithstanding, it would have been premature at this time for the Bank to revise significantly its forecast,” it says. “We believe that the Bank will need further evidence before it alters its mind on the outlook.”

However, it notes that there was one somewhat puzzling reference to the wealth effect in the Bank’s statement as a source of upside risk to economic growth. “To be honest, the Bank had made reference to surging credit growth driven by home equity lines of credit in its January MPR update, so this is something that they have been looking at for a while. This said, the timing for the introduction of this reference comes at a time when home price inflation appears to be leveling off.”

Looking ahead, RBC is calling for the Bank of Canada to hold the policy rate steady in 2007, but it says that rate hikes are likely in second half of 2008. “While the pace of economic growth was slow in the fourth quarter, the data for December and January proved to be much stronger and set up for a firmer growth trajectory in early 2007. The data results are largely tracking the Bank of Canada’s forecasts and we believe that gives central bankers little reason to change their current policy outlook,” it says.

NBF adds that it still believes that deteriorating fundamentals in the U.S. economy will increase spare capacity in the Canadian economy in the coming quarters and keep lid on inflationary pressures. “Accordingly, we are maintaining our view that the Bank will ease slightly in the second half of 2007 (50 basis points).”

“The expectation of further domestic strength will keep the Bank of Canada on hold for the rest of this year. Even if economic activity slows by more than expected, the observed weakness in labour productivity may keep the Bank on hold as they cite a slower growth rate of potential output,” TD maintains. “Only if the weakness in economic growth is accompanied by an extended period of subdued job creation will the odds of a cut increase.”