Bank of Canada raises rates, says it is likely to pause for now

OTTAWA, Jan 25 (Reuters) - The Bank of Canada on Wednesday hiked its benchmark overnight interest rate by 25 basis points to 4.5%, its highest level in 15 years, and said it would likely pause to measure the cumulative effect of previous increases.

The move was in line with expectations from a Reuters' poll of economists. The central bank has raised rates at a record pace of 425 basis points in 10 months to tame inflation, which peaked at 8.1% last summer and slowed to 6.3% in December, still more than three times the bank's 2% target.

Growth this year will be stronger than had been projected in October but is expected to stall through the first semester, the bank said in its quarterly Monetary Policy Report, which includes new forecasts. Inflation will fall to about 3% around the middle of this year, and reach target next year.

If the economy evolves as forecast, "Governing Council expects to hold the policy rate at its current level while it assesses the impact of the cumulative interest rate increases," according to a statement.

"Governing Council is prepared to increase the policy rate further if needed to return inflation to the 2% target."

(Reporting by Steve Scherer and David Ljunggren; Reuters Ottawa bureau, [phone]; [e-mail])