In a widely expected move, the Bank of Canada left the key overnight rate at 3 per cent.

However, the central bank warned Wednesday that the economy is weakening slightly.

The Bank said three global developments, all highlighted in the July Monetary Policy Report Update, continue to have a major influence on the Canadian economy.

Two of them -- the course of the U.S. economy and the turbulence in global financial markets -- have evolved in line with the Bank's expectations.

The third highlighted development was the sharp increases in commodity prices. The Bank said the "risk identified in July that these prices could be weaker than assumed has materialized."

The decline in prices is largely due to the impact of slower global growth on the demand for energy, said the Bank.

"The reduction in commodity prices has been a significant factor in the decline of the Canadian dollar against the U.S. dollar," the Bank said in a press release Wednesday. "The weaker global growth and the decline of the Canadian dollar will have opposing effects on the demand for Canadian goods and services."

Meanwhile, the Bank said domestic demand has slowed modestly in Canada but remains strong.

"It continues to be supported by financial conditions that remain significantly better than those in most other major economies and by income gains stemming from past improvements in the terms of trade," said the statement.

"Overall, the level of economic activity is slightly lower than expected in July but still close to the economy's production capacity."

The Bank said it continues to expect that the total and core inflation will hit 2 per cent in the second half of 2009. However, it said the recent decline in energy prices means the spike in total CPI inflation between now and the first quarter of 2009 will be lower than July's projection.

"Given these developments, the Bank judges that the current level of the target for the overnight rate remains appropriately accommodative," said the statement.

The Bank said it will continue to "set monetary policy consistent with achieving the 2 per cent inflation target over the medium term."

Patricia Croft, chief economist of Phillips, Hager & North Investment Management Inc., said there's a growing viewpoint that the Bank will cut rates next time.

"That's because the Canadian economy slowed considerably over the course of the summer, basically down to stall speed in terms of the June GDP report," Croft told CTV's Canada AM on Wednesday.

She said Canadians are now beginning to feel the same kind of economic pressures as residents in the U.S., U.K., Europe and Japan.

The bank's next interest rate decision will be made on Oct. 21.