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# Bank of Canada raises policy rate to 2.5% in first hike since 2023
- URL: https://www.theglobalbanker.com/bank-of-canada-raises-policy-rate-to-2-5-in-first-hike-since-2023/
- Published: 2026-10-28T18:48:48.000Z
- Updated: 2026-10-28T20:30:19.000Z
- Description: The Bank of Canada lifts its key interest rate by 0.25 percentage points to 2.5%, its first increase since July 2023, and expects inflation to stay above 3% through much of 2027.
- Author: TGB Editorial Team
- Tags: Central Banks, Americas, #newsroom

The Bank of Canada raised its key interest rate by 0.25 percentage points to 2.5%, according to MoneySense. The increase is the bank's first since July 2023 and its first move in a year.

In its Monetary Policy Report, the bank projects that inflation in Canada will remain above 3% through much of 2027, longer than anticipated in its July report and materially higher than previously forecast. In a statement the bank said it expects inflation to rise to about 3.5 per cent by the end of the year as oil and gas prices push up the headline figure.

## ENERGY AND COST PRESSURES BUILD

Inflation remains around 3%, pushed up by higher gasoline prices, the bank said, adding that reduced oil supply from the Middle East and strains on refining capacity are pushing up inflation globally. While businesses have mostly absorbed higher input costs so far, Bank of Canada surveys suggest cost pass-through will increase over the next year, according to press reports.

Speaking to reporters after the announcement, Governor Tiff Macklem acknowledged how raising rates will feel for Canadians and businesses. He said that raising the policy rate would help lean against pass-through and help get inflation back.

## A YEAR ON HOLD AT 2.25%

The policy rate had been held at 2.25% since the bank's October 2025 cut, according to MoneySense. Statistics Canada says the consumer price index rose 3.1% from a year earlier in September, up from 3.0% in August and just above the top of the bank's 1%-3% inflation-control range. Energy prices were up 19.0% over the year and gas 27.8%; without the rise in gas prices, inflation was 2.2%.

In a Reuters poll of economists, 56% of those surveyed said the bank would raise its overnight rate by a quarter percentage point to 2.50%, and many economists had changed their view from a hold to a hike, citing remarks from Macklem. A 55% majority also forecast one more rise before March 2027, after which the overnight rate would be held at 2.75%; if correct, that would be the shortest tightening campaign by the bank in 30 years, according to the Reuters poll.

## GROWTH OUTLOOK AND THE PATH AHEAD

The bank said the Canadian economy entered the second half of 2026 on firmer footing and revised up its outlook for economic activity, though renewed trade tensions with the United States will weigh on near-term growth. It expects growth of one per cent this year and 2% in 2027 and 2028, but stressed that its forecast is subject to considerable uncertainty. Energy prices and the trade relationship with the United States remain the two most important risks to the inflation outlook, it said.

Macklem said there could be a need to raise the policy rate further but that, given the uncertainties, the bank would proceed carefully, with its Governing Council taking future decisions one meeting at a time. A decision is scheduled for 9 December, according to the bank's 2026 schedule.

Andrew Grantham, senior economist at CIBC, said the move was widely expected, and he sees the bank holding rates at 2.5 per cent at the December meeting before raising them again in January by 0.25 per cent. Andrew DiCapua, principal economist at the Business Data Lab and Canadian Chamber of Commerce, said inflation pressures had not eased enough to reassure the bank, but noted that financial conditions have already tightened and that higher interest rates can further weaken demand.

For borrowers, lenders' prime rates will rise by 25 basis points, while fixed mortgage rates are not directly affected by the bank's rate decisions, MoneySense reported. Clay Jarvis, mortgage expert at Ratehub.ca, told MoneySense that the lowest five-year variable mortgage rate will likely increase from 3.45% to 3.70%.

*Related: [Bank of Canada surveys showed tariff tensions darkened business outlooks](https://www.theglobalbanker.com/bank-of-canada-surveys-showed-tariff-tensions-darkened-business-outlooks/)*