The Bank of Canada is raising its target for the overnight rate by one-quarter of one percentage point to 2.5%. The operating band for the overnight rate is correspondingly increased, and the Bank Rate is now 2.75%.

Information received since the Bank’s last interest rate announcement on April 16 indicates that the economic recovery in Canada has been somewhat stronger than anticipated, the Bank said today in a prepared statement. Core inflation in April rose to 2.2%, slightly above the level that had been projected. Total CPI inflation was 1.7%.

“Today’s interest rate increase represents a further reduction in the substantial amount of monetary stimulus in the economy. Going forward, with the economy showing strong momentum and moving back towards full production capacity more quickly than had been expected, the Bank will take the action necessary to keep inflation at its 2 per cent target over the medium term. This will contribute to sustaining economic activity at full capacity.”

Following the Bank of Canada announcement, the country’s major banks have been making their own announcements, changing the prime lending rate to 4.25%.