The Bank of Canada hiked its benchmark interest rate by 25 basis points to 0.50 per cent on Wednesday.

While the bank pointed to a stronger-than-expected Canadian economy and soaring consumer price growth, it also acknowledged the conflict between Russia and Ukraine as a new risk to global growth.

Here’s how Bay Street economists are reacting to the rate move:

“Today’s rate hike is the first step in the most consequential tightening cycle in decades. Monetary policymakers are trying to slow down already-red hot inflation instead of their typical tact of heading off price pressures before they fully emerge. While the Bank of Canada will need to balance their desire to get a handle on inflation against the risks of cooling the economy too much, we expect central bankers to follow this up with another rate hike in April and two more over the course of the remainder of the year.”

- Royce Mendes, managing director and head of macro strategy, Desjardins

“With [inflation] likely to run hotter than we had expected through the first half of the year, odds are that the bank will deliver the remaining three quarter-point hikes we had allocated for 2022 over the next three rate-setting dates, rather than spread out through the year. We expect it to then pause at a 1.25 per cent overnight rate to take stock of the direction for growth and inflation, and to let quantitative tightening operate as a tool for adjusting policy, before resuming rate hikes in 2023.”

- Avery Shenfeld, chief economist, CIBC Capital Markets

“The bank’s statement attempted to find some balance between the recent positive economic developments in Canada and the downside risks to the global economy from the war in Ukraine. The bank noted that fourth-quarter GDP growth was ‘stronger than the bank’s projection and confirms its view that economic slack has been absorbed,’ and that ‘first-quarter growth is now looking more solid than previously projected’ as well.”

“While the bank noted that the war in Ukraine will have ‘negative impacts on confidence’ and that ‘new supply disruptions could weigh on global growth,’ it also highlighted that, due to the impact on energy and food prices, Canadian ‘inflation is now expected to be higher in the near term than projected in January’ and that this ‘persistently elevated inflation is increasing the risk that longer-run inflation expectations could drift upwards.’”

- Stephen Brown, senior Canada economist, Capital Economics

“The Bank of Canada's policy path isn't set in stone. The Russia/Ukraine conflict is causing financial conditions to tighten. Should the spillover become more entrenched, further tightening may need to be reassessed.”

- James Orlando, senior economist, TD Economics

“The [Bank of Canada] will have to weigh additional inflationary pressure brought on by that conflict against two-way domestic impacts (increased revenue for commodity producers, higher prices for consumers) and concerns about the global economic outlook. Central banks would normally look through geopolitically-driven commodity price pressures, but with inflation already so far above target the [Bank of Canada] has said it is more concerned about upside risks to inflation than downside.”

- Josh Nye, senior economist, RBC Economics

“This was not the ‘dovish hike’ that some had expected. With the bank citing higher than expected growth and upside risks to inflation, it appears that a steady dose of normalization continues to be in the cards. While the Ukrainian crisis remains fluid and presents clear risks to the outlook, it looks like we’re on track for a second consecutive hike in April.”

“Where the outlook becomes a little murkier is later in the year, if the crisis in Europe were to rage on and financial conditions continued to deteriorate. In this context, the risks to our forecast for five 2022 rate hikes might be skewed to the downside but we feel that there are still at least a couple of ‘easy’ rate hikes ahead in any event.”

- Warren Lovely, Taylor Schleich and Jocelyn Paquet, National Bank