The Bank of Canada raised its overnight target to 2.5% on Oct. 28 as officials weighed whether high energy costs would push inflation more broadly, while leaving future rate moves uncertain.
The Bank had last raised its target in July 2023. The quarter-point increase also set the Bank Rate at 2.75% and the deposit rate at 2.45%. Governor Tiff Macklem said another increase might be needed, but policymakers would decide at each meeting as conditions evolve. “We will proceed carefully,” Macklem said in his opening statement.
Statistics Canada reported that consumer prices were 3.1% higher in September than a year earlier. The Bank’s October Monetary Policy Report put inflation excluding gasoline at 2.2% and said its core measures remained near 2%.
The Bank said energy costs could show up in prices beyond fuel. It also noted that higher borrowing costs can restrain consumption. Its third-quarter Business Outlook Survey found 41% of firms expected inflation to exceed 3% over the next two years, down from 44% in the second quarter. The survey ran from Aug. 6 to Sept. 2, with most interviews completed before Canada-U.S. trade talks collapsed and Canada announced new counter-tariffs.
The Bank’s October outlook puts average inflation at 3% in 2027, roughly a percentage point above its July projection. It sees inflation near the 2% target again by mid-2028. The Bank projects gross domestic product growth of 1% in 2026 and 2% in both 2027 and 2028.
In Reuters’ account of trading after the announcement, one U.S. dollar bought C$1.4050, equivalent to 71.17 U.S. cents for the Canadian currency; the loonie had edged higher. Before the decision, FXStreet reported that Commerzbank analyst Norman Liebke expected a quarter-point rise but questioned whether subdued core inflation warranted action at that meeting. FXStreet also said market pricing at the time implied four rate increases by September 2027, a reported expectation rather than a committed policy path.
The Bank’s next rate decision is scheduled for Dec. 9, followed by its next Monetary Policy Report on Jan. 27, 2027.
