The Bank of Canada (BoC) has announced it is hiking interest rates to 2.5%, a 100 basis points increase – the largest one-time hike since 1998. 

The BoC also set its bank rate at 2.75% and deposit rate at 2.5% and said it will continue with its quantitative easing policy.

This is the fourth time the BoC has raised interest rates since March, in an effort to combat rising inflation rates – currently at 7.7%, the highest since 1983. 

“With the economy clearly in excess demand, inflation high and broadening, and more businesses and consumers expecting high inflation to persist for longer, the Governing Council decided to front-load the path to higher interest rates by raising the policy rate by 100 basis points today,” wrote the Bank of Canada in a news release. 

The move to increase the interest rate by a full 100 basis points surprised many economists – who had expected a 75 basis point increase, according to BNN Bloomberg.

BoC Governor Tiff Macklem warned that more hikes are to come. 

The bank says its Governing council “continues to judge that interest rates will need to rise further, and the pace of increases will be guided by the Bank’s ongoing assessment of the economy and inflation.”

The BoC expects high inflation rates will continue in the months to come.

In an accompanying monetary policy report, officials say that Canada’s inflation rate should decrease to 7.5% by the end of the year, while the 2% target will only be reached by the end of 2024.

The outlook for the Canadian economy has also decreased, with experts now seeing a 3.5% gross domestic product expansion this year and a 1.8% expansion next year, less than the 4.2% and 3.2% predicted in April.

In response to the hike, Conservative MP and leadership candidate Pierre Poilievre said that the new “jumbo rate hike of 1%” is a direct consequence of what he calls “JustinFlation”

Poilievre has been a vocal critic of the BoC, pledging to fire Macklem if elected Prime Minister. He accused the BoC of enabling Justin Trudeau’s massive deficits. 

The BoC’s overnight rate target announcement is scheduled for September 7.