The Bank of Canada has raised its key interest rate for the first time since slashing the benchmark rate to near-zero at the start of the COVID-19 pandemic, in a bid to tackle inflation rates that are likely to keep rising from their current three-decade high.

The central bank increased its key rate by a quarter of a percentage point to 0.5 per cent on Wednesday in a bid to help fight inflation, which is at its highest level since 1991.

The move prompted Royal Bank and TD to raise their prime lending rates 91裸聊视频� and other big banks were expected to follow 91裸聊视频� to increase the cost of loans such as variable-rate mortgages that are linked to the central bank91裸聊视频檚 benchmark rate.

In making its announcement, the Bank of Canada said it expects inflation to be higher in the near-term than previously thought. The central bank warned that this week91裸聊视频檚 rate hike won91裸聊视频檛 be the last, with economists expecting multiple increases before the end of the year.

Rate hikes in the past took place before the economy hit its full potential and inflation went up, said TD chief economist Beata Caranci. But circumstances are the opposite now, she said, raising the pressure on the bank to get right the timing and pace of hikes.

91裸聊视频淭hey have actually less wiggle room because we are in a high inflation environment and they weren91裸聊视频檛 proactive as they were in past cycles,91裸聊视频� she said.

91裸聊视频淥n the flip side, if things go horribly from an economic perspective, they don91裸聊视频檛 have room now to cut because we91裸聊视频檙e not at a level where they could give back stimulus.91裸聊视频�

It was two years ago this week that the Bank of Canada first cut its key policy rate to get ahead of economic fallout from the emerging novel coronavirus crisis. What followed were two more rate cuts in March 2020 that brought the key policy rate to 0.25 per cent.

Since then, the economy has bounced back quickly.

Statistics Canada said Tuesday that the economy grew at an annual rate of 6.7 per cent over the last three months of 2021, which was stronger than the Bank of Canada had expected, and real gross domestic product is now above pre-pandemic levels.

The bank said it expects growth in the first quarter of this year to be more solid than its previous projections in January, even with an Omicron-related setback that month that saw 200,000 jobs lost.

It expects the labour market setback to be temporary, and strong household spending should strengthen further as public health restrictions ease as several provinces have started to do this month.

Adding to existing inflationary pressures is Russia91裸聊视频檚 unprovoked invasion of Ukraine, which has sent global oil prices higher and added new kinks to global supply chains.

In response, Industry Minister Fran莽ois-Philippe Champagne told reporters on Parliament Hill that he has asked the Competition Bureau to keep an eye on prices at the pumps, and spoken to companies about boosting domestic production to counteract any possible shortages.

Even though the bank can91裸聊视频檛 specifically fight inflation linked to the conflict, it can tackle domestic price increases like those in the country91裸聊视频檚 housing market, said Royce Mendes, managing director and head of macro strategy at Desjardins.

The bank hopes that by making it more expensive to borrow, demand from buyers will cool.

91裸聊视频淭hese are the types of inflationary pressures that the Bank of Canada can contain with increasing its interest rates and that91裸聊视频檚 what it91裸聊视频檚 trying to do,91裸聊视频� Mendes said.

The first rate hike may have the largest affect on how households manage their debt, but the central bank would have to raise rates by a full percentage point before there is an effect on the country91裸聊视频檚 housing market, said BMO chief economist Douglas Porter.

91裸聊视频淓very single basis point matters to somebody out there,91裸聊视频� Porter said. (A basis point is a one-hundredth of a percentage point.)

91裸聊视频淲e91裸聊视频檇 need to see a number of Bank of Canada interest rate hikes before it would really begin to seriously affect the economy.91裸聊视频�

A rate hike generally takes as little as six months or as many as 18 months before it has an effect on headline inflation.

Of more immediate concern for the bank91裸聊视频檚 senior decisionmakers, and noted in Wednesday91裸聊视频檚 announcement, is that Canadians are starting to expect that inflation will stay higher for longer, which could lead to runaway inflation.

91裸聊视频淚n this sense, inflation expectations cause inflation,91裸聊视频� said Tu Nguyen, an economist with RSM Canada. 91裸聊视频淪o the bank taking actions and taking on a hawkish tone can help, in a way, reassure consumers and businesses to that know this bout of high inflation is not going to last forever.91裸聊视频�

91裸聊视频� Jordan Press, The Canadian Press