Canada raises interest rate to 2.5% for the first time since 2023

The Bank of Canada raised its key interest rate by a quarter of a percentage point to 2.5% on Wednesday, the first increase since July 2023, warning that continued high energy prices could broaden inflationary pressures. Governor Tiff Macklem said the hike was necessary to limit the pass-through of energy costs to overall prices.

The Bank of Canada raised its key interest rate by a quarter of a percentage point to 2.5% on Wednesday, October 28, 2026, the first increase since July 2023. Governor Tiff Macklem said the rate hike was necessary to limit the potential pass-through of higher energy costs to overall prices, amid improved economic activity and rising inflation expectations among households and businesses. The central bank did not rule out further rate increases but stressed that future decisions would depend on economic and inflation developments. The decision came as the Canadian economy tries to recover from trade disruptions with the United States, after data showed relative improvement in activity, investment, and exports, despite the continued impact of US tariffs on several sectors. In its monetary policy statement, the Bank of Canada forecast inflation to rise to around 3.5% by the end of this year, averaging about 3% during 2027, before returning to near the 2% target by mid-2028. It noted that prolonged higher oil prices, amid the ongoing war in the Middle East, have increased fuel, production, and transportation costs, heightening concerns about these pressures spilling over into other goods and services prices.