Bank of Canada says growth to stall through the middle of 2023

OTTAWA, Jan 25 (Reuters) - The Bank of Canada on Wednesday said growth would stall through the middle of this year and predicted that while inflation would come down faster than previously forecast, it would not return to the bank's 2% target until next year.

Canada's economy will grow 1% this year, compared to an October forecast of 0.9%, it said in its quarterly Monetary Policy Report. Inflation is seen on average at 3.6% this year, compared with the previous forecast of 4.1%.

Stalling growth during the first half means "the likelihood of a couple of quarters with slightly negative growth is roughly the same as that of a couple of quarters with slightly positive growth," it said.

In 2022, the economy likely expanded by 3.6%, compared with a previous forecast of 3.3%, and expanding 1.8% next year, lower than the 2% previously forecast.

Average inflation next year is expected to be 2.3%, slightly higher than the October forecast of 2.2%.

The bank separately increased its overnight policy rate by a quarter of a percentage point to 4.5% and indicated it would likely pause there to monitor the impact of previous rate hikes.

(Reporting by Steve Scherer, editing by David Ljunggren; Reuters Ottawa bureau, [phone]; [e-mail])