The Bank of Canada announced Wednesday it increased interest rates by 100 basis points, which marked the steepest rate hike since August 1998.

The central bank said it increased its target for the overnight rate to 2.5%, with the bank rate now reaching 2.75% and the deposit rate climbing to 2.5%.

The bank said it is continuing its policy of quantitative tightening in order to fight against high inflation.

Inflation in Canada is higher and more persistent than the central bank expected, and it will likely remain around 8% in the next few months, the bank said in a statement.

"While global factors such as the war in Ukraine and ongoing supply disruptions have been the biggest drivers, domestic price pressures from excess demand are becoming more prominent," it added.

"Many central banks are tightening monetary policy to combat inflation, and the resulting tighter financial conditions are moderating economic growth," it noted.

Canada's consumer inflation rose to 7.7% in May year-on-year, recording the highest annual gain since 1983. It posted an annual gain of 6.8% in April.

The bank said it forecasts Canada’s economy will grow by 3.5% in 2022, 1.75% in 2023, and 2.5% in 2024, adding: "Economic activity will slow as global growth moderates and tighter monetary policy works its way through the economy."/aa