In order to cool down an overheating economy and persistently high inflation, the Bank of Canada increased its overnight rate on Wednesday to a 22-year high of 4.75%. Markets and economists instantly predicted yet another increase next month.

After increasing borrowing prices eight times since March 2022 to a 15-year high of 4.50% - the fastest tightening cycle in the bank's history - the central bank had been on hold since January to evaluate the effects of prior hikes.

Unexpectedly high consumer spending, a rise in service demand, an uptick in housing activity, and a tight labour market demonstrate that excess demand is more enduring than previously thought, according to a statement from the central bank.

Noting an uptick in inflation in April and the fact that three-month measures of core inflation remained high, the Bank of Canada (BoC) said that "concerns have increased that CPI inflation could get stuck materially above the 2% target."

In light of the circumstances, the governing council came to the conclusion that "monetary policy was not sufficiently restrictive to bring supply and demand back into balance and return inflation sustainably to the 2% target."

Following a four-week high at 1.3322, the Canadian dollar (CAD=) was trading 0.4% higher at 1.3350 to the dollar, or 74.91 U.S. cents. In July, there is a 60% possibility of another rate increase, and by September, all future tightening has been fully priced in.

The rate last reached 4.75% in April and May of 2001.

On Thursday in British Columbia, Deputy Governor Paul Beaudry will give a speech and take questions from the media.

Pierre Poilievre, the head of Canada's main opposition Conservative Party, addressed his parliamentary group. He accused Justin Trudeau, the leader of the Liberal Party, of inducing inflation through deficit spending and leading the nation towards "a full-scale financial crisis."

Chrystia Freeland, Canada's finance minister, claimed that price rises have been fueled by both the economic recovery from the COVID-19 pandemic and Russia's invasion of Ukraine.

No country is "better positioned for a soft landing than Canada," she told reporters. "We are very close to the end of this difficult time and to return to low, stable inflation and strong, steady growth."