OTTAWA — The Bank of Canada raised its key interest rate to 0.5 per cent this morning, in an attempt to start taming an inflation rate that reached 5.1 per cent in January. It’s the first increase since the bank slashed the rate to its “effective lower bound” of 0.25 per cent at the beginning of the COVID-19 pandemic in 2020.

Here’s what you need to know:

The key line: “All told, inflation is now expected to be higher in the near term than projected in January,” the bank said in its announcement. When it last made a rate ruling, the bank kept the overnight rate at its rock-bottom level of 0.25 per cent but signalled today’s increase was probably coming. Since then, its inflation projections, of about five per cent annually in the first half of 2022, have worsened.

Why that is: Canada’s economy was stronger in the last quarter of 2021 than the bank expected, growing at 6.7 per cent a year instead of the 5.8 per cent anticipated in its last major economic outlook in January. Both exports and imports are up, the housing market is busy, and Omicron-related restrictions are waning. Also, oil prices are above January expectations: the bank assumed the benchmark price of West Texas Intermediate crude would be US$75; today it’s over US$100.

How much difference the war makes: Possibly a lot, but it’s hard to say just how. “The unprovoked invasion of Ukraine by Russia is a major new source of uncertainty,” the bank said. Oil is just one of the commodity prices that have zoomed up (wheat this week hit prices not seen since 2008, when food shortages were a global concern), supply chains are shakier, the markets are more volatile and consumers and producers are worried.

What they’re saying: The Canadian Chamber of Commerce endorsed the rate hike, even saying it’s overdue. But its chief economist Stephen Tapp told The Logic there will be consequences.

“It will probably implicate smaller companies and those seeking financing more than others,” he said. The bank has indicated it expects to raise rates to “normal” levels of about two per cent over time and Tapp said it might need to overshoot that. If you’re looking for financing, “it would be wise to lock in capital at current rates.”

Venture-capital leaders have warned about this effect.In the U.S., Federal Reserve chair Jerome Powell echoed the Bank of Canada’s thinking.

What’s next: Bank governor Tiff Macklem has two appearances tomorrow: a speech at 11:30 a.m. ET, billed as an “economic progress report,” and a session with the House of Commons finance committee at 3:30 p.m. ET.

The Bank of Canada’s next interest-rate announcement, which will be paired with a new full report on the economy, is due April 13.

“Assuming global conditions don’t deteriorate massively, look for another [0.25-point] rate hike at the next meeting in April,” BMO’s Benjamin Reitzes said in a commentary.