Bank of Canada raises rate to 2.50 per cent — first move in a year

By The Canadian Chronicle · Tuesday, October 27, 2026

News · The Canadian Chronicle

Published Tuesday, October 27, 2026 · Last updated Wednesday, October 28, 2026 · 4 min read

The Bank of Canada raised its target for the overnight rate by 25 basis points to 2.50 per cent on Wednesday, October 28, with the Bank Rate at 2.75 per cent and the deposit rate at 2.45 per cent. It is the bank’s first change in a year — the rate had sat at 2.25 per cent since October 2025 — and its first increase since July 2023. Governing Council said it made the move to reduce the risk that continuing high energy prices spread broadly to the prices of other goods and services.

Inflation is the reason

Inflation is the reason, in the bank’s own framing. Given persistently high oil prices, consumer price inflation has been around 3 per cent since April and is projected to rise to about 3.5 per cent by the end of the year. Excluding gasoline, inflation was 2.2 per cent in September, and measures of core inflation remain close to 2 per cent. But the bank says cost pressures are building: high fuel prices are raising the costs of production and transportation, imported industrial and electronics input prices have also increased, and while businesses have mostly absorbed higher input costs so far, bank surveys suggest cost pass-through will increase over the next year. Near-term household and business inflation expectations have risen, while longer-term inflation expectations remain well anchored.

The outlook in the Monetary Policy Report

The October Monetary Policy Report projects inflation averaging 3 per cent in 2027 — a full percentage point above the July projection — before coming down to 2 per cent in the middle of 2028. On growth, the Canadian economy is projected to grow 1 per cent in 2026 and 2 per cent in both 2027 and 2028, a somewhat stronger overall projection than in July. Growth picked up through the middle of this year — 3.3 per cent in the second quarter, with indicators pointing to about 2 per cent in the third — but the bank projects a slowdown in the fourth quarter owing to new United States tariffs, before growth picks up again in 2027 on business investment, exports and fiscal measures. Consumption growth is projected to moderate and housing to remain relatively weak. The unemployment rate has been around 6.5 per cent for several months, and the bank says a broad set of indicators still point to some excess supply in the economy. Global growth was revised up slightly to 3.1 per cent in 2026, with 3.2 per cent in 2027 and 2028 unchanged from July.

Hold or hike: the two options

At the press conference, Governor Tiff Macklem said Governing Council had considered two options — hold or hike — and laid out both. The main argument for holding, he said, was that the rise in inflation has so far been concentrated in energy prices and in services that rely heavily on energy, such as airfares, while inflation excluding gasoline is still 2.2 per cent and core measures remain close to 2 per cent. The argument that carried the day was that energy prices are higher, are projected to remain higher, and cost pressures are building — the longer energy prices stay high, the more likely those costs are to spill over into consumer prices more broadly. On what comes next, Macklem said: “Governing Council agreed we would take future decisions one meeting at a time. There could be a need to raise the policy rate further, but given the uncertainties, we will proceed carefully.”

For households, the channel is prime

For households, the channel is prime. The chartered-bank prime rate sat at 4.45 per cent going into Wednesday’s decision, in place since November 5, 2025, and variable-rate mortgages and home-equity lines of credit are priced off prime — the big banks normally move it within a day or two of a Bank of Canada change. A quarter-point rise in the policy rate therefore means higher payments for variable-rate borrowers once lenders move. Fixed mortgage rates are not set by the overnight rate directly; they follow bond markets.

What was expected — and what comes next

That is the outcome the majority expected before the announcement — labelled plainly as the pre-decision view, now resolved. A Reuters poll of 34 economists, taken October 21–23, found 19 expecting a quarter-point hike to 2.50 per cent; the other 15 did not call a hike. The bank’s next scheduled rate announcement is December 9, 2026, and its next Monetary Policy Report is released on January 27, 2027. (Bank of Canada press release, Monetary Policy Report and Governor Macklem’s press-conference opening statement, October 28, 2026; Reuters poll, October 23)