OTTAWA (Reuters) - The Bank of Canada raised its key overnight interest rate on Wednesday by a quarter percentage point to 4.25 percent, as expected, and signaled that it would not hike rates further at least for now.

For the first time since September, the bank's statement made no mention of the possible need for further rate hikes.

"With today's increase, the target for the overnight rate is now at a level that is expected to keep the Canadian economy on the base-case path projected in the April Monetary Policy Report and to return inflation to the 2 percent target," the bank said in its statement.

Recent data have confirmed that domestic demand is robust and that overall inflation and core inflation, which strips out the most volatile items, are "evolving largely in line with the Bank's expectations," it said.

It noted continued strong economic momentum in the global and Canadian economies but warned of an increased volatility in commodities markets as well as in foreign exchange and financial markets generally.

In its April report, the bank said the economy was operating at, or just above, its production capacity. It forecast economic growth of 3.1 percent this year and 3.0 percent in 2007 while estimating overall inflation would average 2 percent in 2007 and 2008.

The bank tries to keep annual inflation at the mid point of a 1 percent to 3 percent range.

The core inflation rate came in lower than expected in April, raising some doubts about whether the bank would go ahead and raise rates for a seventh consecutive time.

Nine of Canada's 14 primary securities dealers surveyed by Reuters last week had expected the central bank to raise rates to 4.25 percent but most also said it should be the last rate move this year.

The bank had spoken of the potential need to reduce monetary stimulus in every rate announcement it had made since April 2005, with the exception of last September, when there was some uncertainty after Hurricane Katrina.