Bank of Canada raises rate to 2.5%, its first hike since 2023, as energy lifts inflation

The Bank of Canada raised its key interest rate by a quarter of a percentage point to 2.5% on Wednesday, October 28, 2026, its first increase since July 2023. The central bank said in Ottawa that inflation has turned out higher and more persistent than it expected, mainly because of high energy prices, and that it is acting to stop fuel costs from spreading into the prices of other goods and services.

The decision in full

Bank of Canada — October 28, 2026	Rate
Overnight rate target	2.5% (up from 2.25%)
Bank Rate	2.75%
Deposit rate	2.45%
Size of move	+25 basis points
Last increase before this	July 2023
Next decision	December 9, 2026

The bank's Governing Council said it may need to raise rates further, but "agreed to proceed carefully". Governor Tiff Macklem said the hike was needed to limit the risk that energy-driven price rises turn into broad inflation, and that future decisions will be taken one meeting at a time.

Inflation and growth forecasts

Canada's annual consumer price inflation was 3.2% in September, above the top of the bank's 1–3% control range. Inflation has been around 3% since April and is projected to reach about 3.5% by the end of the year. Excluding gasoline, inflation was 2.2%, and the bank's core measures are close to 2% — but it warned that cost pressures are building as fuel lifts production and transport costs and imported inputs become more expensive. Businesses have so far absorbed much of the increase, and the bank expects more of it to be passed on to customers over the next year.

October 2026 projections	2026	2027	2028
Canada GDP growth	1%	2%	2%
Global GDP growth	3.1%	3.2%	3.2%
Canada CPI inflation	about 3.5% by year-end	about 3% average	back near 2% by mid-year

The economy is stronger than the bank expected in July. GDP grew at a 3.3% annualised pace in the second quarter and indicators point to roughly 2% in the third, helped by consumer spending and a rebound in business investment, led by oil and gas. Unemployment has stayed around 6.5% for several months. The bank expects growth to slow in the fourth quarter because of new US tariffs before picking up in 2027.

Background

The Bank of Canada cut rates steadily from 5% in mid-2024 as inflation came down, reaching 2.25% in 2025. The energy shock from the Middle East conflict, now in its eighth month, has reversed that trend in many countries. On the same day, the US Federal Reserve left its rate unchanged at 3.75%–4% after raising it in September, while two of its officials voted for another hike.

Reactions

The move had been widely expected by markets and most economists. Some disagreed: one prominent Canadian economist called the hike "totally unnecessary and premature", arguing that core inflation is already near target and higher borrowing costs will hurt a fragile housing market. Others said the bank needed to show it would not let inflation expectations drift up; near-term household and business inflation expectations have risen, though long-term ones remain anchored, the bank said.

Why it matters

Canadian homeowners with variable-rate mortgages and lines of credit will see higher payments as commercial banks raise their prime rates, and people renewing fixed mortgages face higher costs. Savers will earn slightly more. The Canadian dollar was trading around 71 US cents.

For Pakistan and South Asia, the decision is another sign that major central banks are turning back to rate rises because of oil prices — a trend that keeps global borrowing costs high and the dollar strong, adding pressure on import-dependent economies.

What happens next

The next Bank of Canada rate announcement is on December 9, 2026, and its next full Monetary Policy Report is due on January 27, 2027. Economists will watch October and November inflation data, energy prices and Canada-US trade talks for clues on whether another hike follows.