- The Bank of Canada raised its key interest rate by 25 basis points to 2.5%
- Policymakers cited inflation concerns and higher energy prices as key reasons for the move
- The Bank upgraded its outlook for Canadian economic growth over the coming years
- Officials said future rate decisions will depend on inflation trends and economic conditions
The Bank of Canada raised the policy rate by 25 basis points on Wednesday to 2½%, the central bank’s first interest rate increase since 2023, lifting its target for the overnight rate to 2.5% from 2.25%. The Bank Rate was raised to 2.75%, while the deposit rate increased to 2.45%
Governor Tiff Macklem said in a news release that the decision was aimed at reducing the risk that persistently high energy costs could lead to broader inflation across the Canadian economy. Policymakers noted that inflation has remained around 3% in recent months and is expected to rise to about 3.5% by the end of the year if elevated oil prices persist.
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In its latest monetary policy assessment, the Bank of Canada said global economic growth has remained resilient despite higher energy prices. The Bank also raised its outlook for Canadian economic growth, citing stronger-than-expected consumer spending, business investment, and exports. Canada’s economy is now projected to expand by 1% in 2026, followed by growth of 2% in both 2027 and 2028.
At the same time, officials acknowledged ongoing uncertainty stemming from global energy markets and Canada-U.S. trade relations. The Bank said new U.S. tariffs and elevated commodity prices could weigh on economic activity while continuing to put upward pressure on consumer prices.
Macklem said the economy has shown resilience but warned that sustained increases in energy costs could become more widespread across goods and services if inflation expectations rise. He added that further rate increases may be required, though the governing council would proceed cautiously given the uncertain outlook.
The announcement was just as expected by financial markets and economists. Higher interest rates typically increase borrowing costs for households and businesses, including mortgage and loan rates, while helping to cool inflationary pressures over time.
The Bank of Canada’s next scheduled interest rate decision is scheduled for December 9, 2026.
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