Bank of Canada raises benchmark rate to 2.5% amid rising energy costs
The central bank lifted its policy rate by a quarter‑point on Oct. 28, its first increase in more than three years, citing higher global oil prices and inflation risks.
The Bank of Canada announced on Wednesday, Oct. 28, 2026, that it has raised its benchmark interest rate by 0.25 percentage point to 2.5 per cent, its first increase in more than three years.
Governor Tiff Macklem told a press conference that global oil prices are “staying higher for longer” and that cost pressures are building. He added that businesses that have been absorbing the shock are increasingly likely to pass those costs on to customers.
"There could be a need to raise the policy rate further, but given the uncertainties, we will proceed carefully," he said.
Inflation outlook and economic forecasts
The Bank of Canada reported that Canada’s annual inflation rose to 3.1 per cent in September, driven largely by high gasoline prices. The institution now projects inflation will reach 3.5 per cent by the end of 2026 and average about three per cent in 2027 – roughly a percentage point above the forecast released in July. The central bank expects inflation to ease to its 2 per cent target by mid‑2028.
Impact on growth and trade
The bank noted that recent tariff increases between Canada and the United States are expected to reduce real gross domestic product growth to 0.8 per cent in the fourth quarter of 2026. Despite this, officials said the economy has shown more resilience than initially anticipated.
Future policy direction
Macklem indicated that the Bank of Canada will take its upcoming decisions “one meeting at a time” but did not rule out further hikes.
The policy rate influences borrowing costs for banks, businesses and consumers across the country. A higher rate typically raises mortgage payments, loan interest and the cost of credit, affecting households and firms that rely on financing.