The Bank of Canada boosted its key interest rate by a quarter of a percentage point Tuesday. The central bank’s overnight rate target rises to 3%.

The operating band for the overnight rate is correspondingly increased, and the Bank Rate is now 3.25%.

It’s the first time the Bank has hiked rates since July 16 of last year.

Economists were split on whether the Bank would move or not, faced with a mixed bag of data, showing slower growth but rampant inflation. Ultimately, inflation fighting won the day.

A majority of economists had expected the Bank to stand pat on rates, pointing to signs of growing weakness in the economy.

Last week, Statistics Canada reported that the country’s GDP growth slowed significantly to just 1.6% in the fourth quarter of 2002. This was much weaker than the 2.3% rate economists had been expected.

The its statement released Tuesday the Bank said “Consumer price data since the Bank’s last interest rate announcement on January 21 indicate that both core and total CPI inflation remain well above the Bank’s 2% inflation target.”

While aware of the significant geopolitical and global economic uncertainties that continue to overhang the short-run economic outlook the Bank said “In light of domestic inflation pressures, the expectation that Canadian economic activity will remain near potential in 2003, the stimulative stance of monetary policy, and improved conditions in capital markets, the Bank has decided to raise the target for the overnight rate.”

The Bank also hinted at future hikes, saying that, “further reductions in monetary stimulus will be required to return inflation to the target over the medium term.”

The Bank’s next scheduled date for announcing the overnight rate target is April 15.

Canada’s banks reacted by raising rates, too. The prime rate at most banks climbed by 25 bps to 4.75%.