Canada lifts its policy rate to 2.5% as energy costs keep inflation up
· BehindLines newsroom
The Bank of Canada has tightened monetary policy, its first increase since July 2023 according to the GNA agency. On 28 October 2026 it raised its policy rate by 25 basis points, from 2.25% to 2.5%, saying inflation had proven stronger and stickier than it expected in July.
A decision driven by energy
According to the bank's statement, the overnight rate target moves to 2.5%, the Bank Rate to 2.75% and the deposit rate to 2.45%. The stated aim is to limit the risk that lasting high energy prices spread to the cost of other goods and services. The bank notes that the Middle East conflict is entering its eighth month with no clear way out, which keeps oil prices elevated. Xinhua, as carried by Ghana's GNA agency, quotes Governor Tiff Macklem as saying: "There could be a need to raise the policy rate further."
Inflation settling in
The bank says consumer prices have hovered around 3% since April and could reach about 3.5% by the end of the year. Excluding gasoline, inflation stood at 2.2% in September, and underlying measures remain close to 2%. Businesses have so far absorbed part of their higher costs, but the bank expects a stronger pass-through to selling prices over the coming year. It projects inflation averaging 3% in 2027, one point above its previous forecast according to GNA, before easing back toward 2% around mid-2028.
Growth and US tariffs
The economy grew 3.3% in the second quarter, and growth is estimated at roughly 2% for the third, better than expected. The bank forecasts growth of 1% in 2026 and 2% in both 2027 and 2028. New US tariffs are nevertheless expected to weigh on activity in the fourth quarter, before a rebound supported by business investment, exports and fiscal measures. Unemployment remains around 6.5%, and some indicators still point to spare capacity. The bank acknowledges considerable uncertainty, notably over trade relations between Canada and the United States.
What comes next
Governor Tiff Macklem does not rule out further increases (a quote carried by GNA), and the bank promises to proceed carefully. Its next decision is due on 9 December 2026, followed by a new Monetary Policy Report on 27 January 2027. The Canadian dollar is trading around 71 US cents, in line with the assumption used in July.