The critical interest rate of the Bank of Canada has been raised to 1%.

Since 2000, this has been the most significant one-time increase in the central bank's rate. In its latest move to combat high inflation, the Bank of Canada raised its benchmark interest rate by half a share point to 1%.

The bank's rate affects Canadian businesses and consumers by influencing the interest rates they pay and receive on products such as mortgages, GICs, and savings accounts. For example, when the pandemic began in March 2020, the bank cut its interest rate to just above zero.

While the move helped the economy weather the unprecedented uncertainty of COVID-19, inflation has risen to its highest level in recent months, prompting the central bank to begin unwinding all that cheap credit.

"Inflation is too high," said Tiff Macklem, governor of the Bank of Canada, at a press conference announcing the news. "Higher interest rates are required." It's the bank's second rate hike in as many months, and as such, Wednesday's move is both the bank's first back-to-back hike since 2017 and its most significant single hike since 2000.

Previously, during the pandemic, the bank began a bond-buying program to keep money flowing and borrowing costs low. However, the bank's bond-buying program, available as "quantitative easing," has been signaling for some time that it may be coming to an end; also, on Wednesday, the bank declared it is now moving in the opposite direction, acquiring rid of all those binds on its books as they expire.

"Maturing Government of Canada binds on the bank's balance sheet will no longer be replaced, also. As a result, the balance sheet will shrink over time," the bank said.

This will raise borrowing costs because the central bank's removal as a guaranteed buyer of all those binds will force those who issue them to pay a higher interest rate to borrow money.