UPDATE 1-Bank of Canada holds rate, sees delayed export recovery
* Bank of Canada holds key rate at 1 pct, as expected
* Says growth in exports, investment delayed
* Says household sector evolving constructively
OTTAWA, Sept 4 (Reuters) - The Bank of Canada held its benchmark interest rate steady at 1 percent on Wednesday, as forecast, and said exports and business investment were taking longer than expected to replace household spending as the key driver of economic growth.
In a statement accompanying its rate decision, the central bank stuck to its vague rate-hike bias, signaling higher rates are on the distant horizon. In language identical to the words it used when it kept rates steady in July, it said rates would not change as long as there is significant slack in the economy, the inflation outlook remains muted and imbalances in the household sector continue to evolve constructively.
It noted, however, that key ingredients that would allow a full economic comeback in Canada have not yet strengthened as much as it had hoped.
"Uncertain global economic conditions appear to be delaying the anticipated rotation of demand in Canada towards exports and investment," the bank said.
Bank of Canada Governor Stephen Poloz has said stronger growth in exports and business investment are key steps in a sequence of events needed for Canada's economy to return to normal after the 2008-09 recession.
The central bank said the economy would begin to absorb excess slack in 2014 and that growth in gross domestic product has been largely consistent with its July forecasts.
In July, the bank said the output gap - the difference between what the economy is producing and what it could produce - would close in mid-2015. The economy must grow by more than 2.1 percent to narrow that gap, it said.
In July, the bank projected second-quarter growth of 1 percent, annualized, but actual growth surpassed that at 1.7 percent. The bank predicted 3.8 percent growth in the third quarter and 2.5 percent in the fourth.
It signaled little concern with recent developments in the housing market and in household debt, saying that while housing has been stronger than anticipated, the strength has been tempered by slower credit growth and higher mortgage rates, and this pointed "to a continued constructive evolution of household imbalances".
In the United States, Canada's top export market, it said that while there has been stronger private demand, data suggested slightly less momentum in the economy than expected.
Overall, the global economy is expanding broadly as anticipated, the bank said.
The Bank of Canada has held rates steady for nearly three years in the longest period without a change in rates since it began targeting the overnight rate in 1999.
Economists surveyed by Reuters in late August expected the bank to begin tightening the policy rate in the fourth quarter of 2014.