The Bank of Canada has increased its benchmark interest rate by 50 basis points to 3.75 percent.
Given elevated inflation and inflation expectations, as well as ongoing demand pressures in the economy, the bank's governing council expected that the policy interest rate will need to rise further, the central bank said in a statement issued on Wednesday.
In the last three months, Canada's CPI inflation has declined from 8.1 per cent to 6.9 per cent, primarily due to a fall in fuel prices.
However, price pressures remain broadly based, with two-thirds of CPI components increasing more than 5 percent over the past year, the bank said.
The bank added that its preferred measures of core inflation were not yet showing meaningful evidence that underlying price pressures are easing.
The bank expected CPI inflation to ease as higher interest rates help rebalance demand and supply, price pressures from global supply disruptions fade, and the past effects of higher commodity prices dissipate.
CPI inflation is projected to move down to about 3 per cent by the end of 2023, and then return to the 2 per cent target by the end of 2024.
According to the bank, the Canadian economy continued to operate in excess demand and labour markets remain tight.
The effects of recent policy rate increases are becoming evident in interest-sensitive areas of the economy: housing activity has retreated sharply, and spending by households and businesses is softening.
The bank projected the country's GDP growth to slow from 3.25 per cent this year to just under 1 per cent next year and 2 per cent in 2024.
Quantitative tightening continues and is complementing increases in the policy interest rate, the Bank of Canada said.