(New throughout, updates prices, market activity and adds comment from strategist) * Loonie touches its strongest since March 18 at 1.2455 * BoC sees economic slack absorbed in second half of 2022 * Canada"s annual inflation rate accelerates to 2.2% in March * Canada"s 2-year yield climbs 3.9 basis points to 0.334% By Fergal Smith TORONTO, April 21 (Reuters) - The Canadian dollar surged on Wednesday by the most since June 2020 and hit a one-month high against its U.S. counterpart, and bond yields climbed, as domestic data showed higher underlying inflation and the Bank of Canada signaled it could hike interest rates as soon as next year. Canada"s central bank kept its key interest rate on hold at a record low of 0.25% but sharply raised its outlook for the economy, saying it now expects slack to be absorbed in the second half of 2022, increasing the likelihood of a hike in borrowing costs next year. The BoC also adjusted its quantitative easing program, cutting the pace of bond purchases to C$3 billion per week from C$4 billion. "The Bank has taken the first step toward exiting QE, in what is clearly a more hawkish statement than markets anticipated," Benjamin Reitzes, Canadian rates & macro strategist at BMO Capital markets, said in a note. Canada"s annual inflation rate doubled to 2.2% in March, Statistics Canada said, while the average of the Bank of Canada"s three core measures was 1.9%, up from 1.8%. The Canadian dollar was trading 1% higher at 1.2480 to the greenback, or 80.13 U.S. cents, its biggest advance since June last year. It touched its strongest intraday level since March 18 at 1.2455. Wall Street rebounded but the price of oil, one of Canada"s major exports, fell for a second day, weighed down by concerns that surging COVID-19 cases in India will drive down fuel demand in the world"s third-biggest oil importer. U.S. crude prices were down 1.2% at $61.93 a barrel. Canadian government bond yields were higher across the curve, with the 2-year climbing 3.9 basis points to 0.334%, its highest level since June last year. (Reporting by Fergal Smith; Editing by Kirsten Donovan and David Gregorio)