Bank of Canada raises key interest rate to 2.5% amid renewed inflation pressures

OTTAWA – The Bank of Canada raised its benchmark interest rate by 25 basis points to 2.5 per cent on Wednesday, October 28, marking its first rate increase since July 2023, as persistent inflation and rising energy prices prompted renewed concerns about the country’s economic outlook.

Governor Tiff Macklem said the decision was necessary to prevent elevated energy costs from spreading more broadly throughout the economy. The central bank warned that further rate increases could become necessary, although policymakers intend to proceed cautiously amid continued economic uncertainty.

The prolonged conflict in the Middle East has contributed to sustained increases in global oil prices, pushing Canadian inflation above expectations. The bank now forecasts inflation will reach approximately 3.5 per cent by the end of 2026 and average around three per cent in 2027, before returning to its two-per-cent target by mid-2028.

Despite these pressures, Canada’s economy has demonstrated greater resilience than anticipated. The central bank expects economic growth of one per cent in 2026, followed by two per cent in both 2027 and 2028. However, renewed American tariffs and uncertainty surrounding Canada–U.S. trade relations continue to present significant risks.

The rate increase is expected to affect borrowing costs for households and businesses, particularly Canadians with variable-rate mortgages and other interest-sensitive loans.

The Bank of Canada’s next scheduled interest rate announcement is December 9.