OTTAWA (Reuters) - The Bank of Canada raised its overnight rate to 3.25 percent from 3 percent as widely expected on Tuesday, and said that further monetary tightening would be required.

"The Bank continues to judge that the risks to the outlook are balanced over the short term, but are tilted to the downside through 2007 and beyond," it said.

"In line with the outlook, some further reduction in monetary stimulus will be required to maintain a balance between aggregate supply and demand over the next four to six quarters to keep inflation on target," the bank said, using similar language to when it raised rates in October.

The increase marked the third consecutive quarter-percentage-point hike by the bank since September. The last time the overnight rate stood at 3.25 percent was on July 14, 2003. Its next rate decision will be on January 24.

"In Canada, despite somewhat stronger-than-expected output growth in the third quarter, the Bank expects the level of economic activity at the end of 2005 to be about as projected in the MPR (Monetary Policy Report)," the central bank said.

Total consumer price inflation moderated more quickly than expected in October to 2.6 percent, mainly on falling gasoline prices, but the core inflation rate at 1.7 percent was in line with projections, the central bank said.

"Information received since the October Monetary Policy Report indicates that the Canadian and global economies have been evolving largely in line with the Bank's expectations," it said. "Overall, the Bank's outlook for the economy and inflation through 2006 and 2007 is broadly unchanged from October."