April 17 (Bloomberg) -- Canada’s currency declined against its U.S. counterpart as a government report showed the annual rate of inflation slowed last month.

“We’re going to see inflation hugging bottom for a good long time,” said Derek Holt, an economist in Toronto at Scotia Capital, a unit of Canada’s third-largest bank. “The markets are fixated on what the Bank of Canada is going to do next week.”

The Canadian dollar, known as the loonie, depreciated 0.2 percent to C$1.2091 per U.S. dollar at 7:15 a.m. in Toronto, from C$1.2073 yesterday. One Canadian dollar buys 82.70 U.S. cents.

The annual inflation rate slowed to 1.2 percent in March from 1.4 percent in the previous month, Statistics Canada said today in Ottawa. The median forecast of 20 economists in a Bloomberg survey was for the rate to remain at 1.4 percent.

The Bank of Canada cut its benchmark interest rate last month to a record low of 0.5 percent. Policy makers will leave it unchanged when they meet on April 21, according to the median forecast of 17 economists surveyed by Bloomberg.

Governor Mark Carney is due to announce guidelines on April 23 about quantitative easing, a policy in which a central bank buys government debt to try to revive economic growth.

The loonie will weaken to C$1.26 against the U.S. dollar this quarter before rebounding to C$1.16 by the end of 2010, according to the median forecast in a Bloomberg survey of 38 analysts and economists.

To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

Last Updated: April 17, 2009 07:16 EDT