The Bank of Canada (BOC) became the first major central bank to signal a temporary halt to interest rate hikes.
In the latest meeting that took place on Wednesday, the central bank has decided to increase the rate by 25 basis points to 4.50%.
Canada's inflation rate continues to show signs of easing with the latest reading showing consumer prices fell to 6.3% in December from a peak of 8.1%.
Even so, it is still three times higher than the central bank's 2% target.
BOC Governor Tiff Macklem said that although it is still far from its target, the latest developments strengthen the central bank's confidence that inflation will come down.
He added that the bank is expected to keep the policy rate at its current level while assessing the cumulative effect of interest rate hikes if the economy develops as predicted.
Previously, the BOC has said that future policy decisions will depend on the data.
Separately, Macklem told Reuters he had no plans to cut interest rates, instead focusing on whether rates needed to go higher to fight inflation.
Following the central bank's policy decision, the Canadian dollar traded slightly lower against the US dollar but still traded higher at a 1-month high of 1.3397.
