The Bank of Canada on Wednesday hiked its key interest rate to 4.5 percent, the highest level in 15 years, and became the first major central bank fighting global inflation to say it would likely hold off on further increases for now.

The 25-basis-point rise matched analysts' expectations. The bank has lifted rates at a record pace of 425 basis points in 10 months to tame inflation, which peaked at 8.1 percent and slowed to 6.3 percent in December, still more than three times the 2-percent target.

"We are turning the corner on inflation," Bank of Canada Governor Tiff Macklem told reporters. "We are still a long way from our target, but recent developments have reinforced our confidence that inflation is coming down."

Canada's approach has until now matched that of the U.S. Federal Reserve, which ratcheted up its own target policy rate by 4.25 percentage points over the last year. The Fed is set to slow the pace of its hikes at a January 31-February 1 policy meeting and signal its battle against inflation is far from over.

Royce Mendes, director and head of macro strategy at Desjardins, said Macklem and his team would keep rates on hold for at least the next few months.

"As a result, we expect that this will be the final rate hike of this cycle," he said.

Macklem said the bank wanted to take time to see how effective the rapid hikes had been in dampening excess demand and hot labor markets that have fueled inflation.

"To be clear, this is a conditional pause," he said, noting there were upside risks to the outlook. "If these upside risks materialize, we are prepared to raise interest rates further."

In its quarterly Monetary Policy Report, which includes new forecasts, the bank painted a picture of an economy that is going to stall and could tip into a recession during the first half of the year, bringing inflation down to about 3 percent at mid-year and back to 2 percent in 2024.

The central bank had said in December that future rate decisions would be data dependent, and a blowout December employment report, released earlier this month, highlighted the upside risk to wage and price growth.

Money markets already see the Bank of Canada cutting rates in October, but Macklem dismissed discussion of cuts as premature.

(Source: Reuters with edit)