By Steve Scherer

OTTAWA The Bank of Canada (BoC) will leave interest rates on hold on Wednesday as the economy stalls, analysts said, though many see the central bank warning that future hikes are still possible with inflation hovering well above its 2% target.

In July, the BoC hiked rates to a 22-year high of 5.0% and said more hikes might be needed, but it held in September as growth appeared to be weakening. That trend has been confirmed, with growth effectively stalling in July and August.

"All the signs across the Canadian economy right now are pointing to a prolonged slowdown," said Karl Schamotta, chief market strategist at Cambridge Global Payments. Weak growth and a modest easing of inflation "should keep the Bank of Canada on hold," he said.

The BoC has hiked its key overnight rate 10 times since March of last year to fight inflation, which peaked at over 8%. Inflation in Canada unexpectedly slowed to 3.8% in September, down from 4.0% in August.

The policy announcement is due at 10 a.m. ET (1400 GMT) on Wednesday, when the BoC will also publish its updated forecasts for growth and inflation.

Canadian retail sales fell by 0.1% in August from July and look set to stay flat in September, data showed on Friday.

In July, it said inflation would stay above target until mid-2025 and growth would stall. Earlier this month, BoC Governor Tiff Macklem said the economy was not heading for a "serious recession".

"Policymakers don't want to see the market price in rate cuts again in early 2024," said Royce Mendes, head of macro strategy at Desjardins Group. Macklem "will need to sound sufficiently hawkish to retain current market pricing, which more or less has the Bank of Canada holding rates steady until 2025."

The Bank of Canada is probably done raising interest rates and will hold them at 5.0% for at least six months, according to a Reuters poll of economists published on Friday, which found a majority expecting a first reduction in the second quarter of 2024.

Money markets had priced in a 43% chance for a hike on Wednesday before last week's inflation data came in. By Friday they had trimmed that to a 13% chance.

(Reporting by Steve Scherer; editing by Jonathan Oatis)