Archive photo: Parliament Hill in Ottawa, not the Bank of Canada. Virooshan Theva/Pexels (cropped)
The Bank of Canada raised its benchmark overnight interest rate by a quarter percentage point to 2.50% Wednesday, saying persistent energy costs risk spreading more broadly into prices for other goods and services.
The central bank set its Bank Rate at 2.75% and deposit rate at 2.45%, according to its October 28 policy statement.
Governing Council said further increases could be needed, but it would proceed carefully given uncertainty. That leaves the possibility of additional tightening open without committing the bank to another increase.
Inflation forecast moves higher
The bank expects consumer-price inflation to rise to about 3.5% by the end of 2026 and average 3% in 2027, a percentage point above its July projection. It forecasts a return to 2% in the middle of 2028.
High oil prices and wider cost pass-through are making inflation more persistent, the bank said. It noted that businesses had mostly absorbed higher input costs so far, but its surveys suggest more of those costs will be passed on over the coming year.
Excluding gasoline, inflation was 2.2% in September, and core measures remained close to 2%, the statement said. Near-term household and business inflation expectations have risen, while longer-term expectations remain well anchored.
Growth improves, but trade risks remain
Canada’s economy grew 3.3% in the second quarter, and recent indicators point to growth of about 2% in the third, the bank said. It expects full-year growth of 1% in 2026 and 2% in both 2027 and 2028.
The bank expects new U.S. tariffs to slow growth in the fourth quarter before a recovery in 2027 supported by business investment, exports and fiscal measures. It cautioned that the outlook remains particularly uncertain because of Canada-U.S. trade relations.
The next scheduled interest-rate decision is December 9, 2026. The bank’s next Monetary Policy Report is due January 27, 2027.
JBizNews Desk | Ottawa
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