The Bank of Canada has raised its key interest rate by 50 basis points as it continues its attempt to wrangle high inflation.

This latest increase is the sixth since March, and brings the key interest rate to 3.75 per cent. 

"In Canada, the economy continues to operate in excess demand and labour markets remain tight. The demand for goods and services is still running ahead of the economy’s ability to supply them, putting upward pressure on domestic inflation," the bank said.

"Businesses continue to report widespread labour shortages and, with the full reopening of the economy, strong demand has led to a sharp rise in the price of services."

The Bank expects Canada’s economic growth to stall into the first half of 2023 as the effects of higher interest rates are felt across the economy. The BOC forecasts that GDP growth will slow from 3.25 percent in 2022 to just below 1 per cent in 2023, and 2 per cent in 2024.

Global growth is expected to slow from 3 per cent in 2022 to about 1.5 per cent in 2023, and then should pick up to approximately 2.2 per cent in 2024. This is slower than the Bank projected in July’s "Monetary Policy Report."

Inflation has fallen from 8.1 per cent to 6.9 per cent in the last three months, but price pressures remain "broadly based," the Bank said. There is not yet "meaningful evidence" that underlying price pressures are easing, though, and inflation is expected to remain high in the near-term.

Long-term, higher interest rates will help to ease inflation. The BOC projects that inflation will fall to about 3 per cent by the end of 2023 before returning to its target of 2 per cent by the end of 2024.

While today’s 50 basis point increase is less than the 75-point hike many economists expected, it will likely not be the last.

"Given elevated inflation and inflation expectations, as well as ongoing demand pressures in the economy, the Governing Council expects that the policy interest rate will need to rise further," the Bank said.

"We are resolute in our commitment to restore price stability for Canadians and will continue to take action as required to achieve the 2% inflation target."