Bank of Canada raises rates to a 14-year high and prepares for further tightening

As expected, the Bank of Canada on Wednesday raised interest rates to their highest level in 14 years. The current policy is the most aggressive in decades, and the Bank of Canada says the tightening campaign is far from over - inflation needs to be contained.

The central bank raised its policy rate to 3.25% from 2.50% in another rate decision, matching analysts' forecasts. Thus, the discount rate has reached the level of April 2008. Rates are now above the Bank of England's neutral range. This means that it will be the first time in twenty years when monetary policy limits growth.

The central bank also said in a statement after its fourth consecutive sharp rate hike that the outlook for inflation leads the Governing Council to conclude that interest rates should continue to be raised. The extent of the increase will depend on how the effects of tightening monetary policy affect the economy.

Canada is now leading the way among other developed nations in tightening monetary policy. At the moment, the total rate hike is 300 basis points.