The Bank of Canada offered a rosier, revised outlook on the economy Tuesday.

It now believes the economy is beginning to recover from recession and will perform better than expected in the next 18 months.

The central bank maintained its key overnight rate at the lowest possible level of 0.25 per cent, and committed to keep the rate there until the spring of 2010.

The revised outlook sees less shrinkage and more growth in the economy, according to Michael Kane of BNN.

"The bank of Canada now says the contraction will not be quite as bad as expected, and the expansion greater than expected," Kane told CTV News Channel.

"Previously it was expected that the Canadian economy would contract by 3 per cent this year, and then grow 2.5 per cent next year. They are moderating all those numbers now, and the latest expectation is for a smaller 2.3 per cent contraction this year, a slightly larger 3 per cent growth next year," Kane said.

Kane noted that measures taken by the bank and the federal government to help the economy from slipping too much -- such as stimulus funding and lower interest rates -- appear to be working.

The bank also said credit conditions have improved so much it is reducing the amount of money it is injecting into the system to support lending.