OTTAWA - The Bank of Canada says the economy is operating at a slightly lower level than it had expected and needs interest rates to remain at the current historic low to stimulate growth.

Canada's central bank says it will keep its trendsetting interest rate at 0.25 per cent, where it has been since last April.

The Bank of Canada says economic growth resumed in the third quarter of 2009 and will continue this year, but the high Canadian dollar and low demand for Canadian exports in the U.S. will restrain expansion.

It says the economy likely contracted by 2.5 per cent in 2009, slightly worse than the 2.4 per cent it had forecast in October.

As well, it says growth this year will be one-tenth of a point lower than it had projected at 2.9 per cent.

The good news is that by 2011 the private sector will be the sole driver of growth, without help from government stimulus.

It projects the economy will expand by 3.5 per cent next year, a little better than the 3.3 per cent it had earlier expected.