The Bank of Canada on Wednesday 28 October 2026 raised its target for the overnight rate by 25 basis points to 2.5%, with the Bank Rate at 2.75% and the deposit rate at 2.45%. Governor Tiff Macklem told reporters it is “the first interest rate increase since July 2023.” The rate had been held at 2.25% on 2 September.

Why the Bank says it moved

  • Energy prices: the press release says that with “persistently high oil prices,” CPI inflation “has been around 3% since April and is expected to rise to about 3½% by the end of the year.” The conflict in the Middle East is “now in its eighth month and there is no clear path to resolution.”
  • Pass-through: excluding gasoline, inflation was 2.2% in September and core measures are “close to 2%,” but the Bank says businesses have mostly absorbed higher fuel and input costs so far and its surveys suggest they will pass more of them on over the next year.
  • Projection: CPI inflation is now expected to average 3% in 2027, “a percentage point above the July projection,” and return to 2% around the middle of 2028.
  • Growth: the Bank projects GDP growth of 1% in 2026 and about 2% in 2027 and 2028, somewhat stronger than in July. Q2 growth was 3.3%, Q3 is tracking about 2%, and unemployment has been around 6½% for several months. It expects new U.S. tariffs to slow growth in the fourth quarter.
“There could be a need to increase the policy rate further, but given uncertainties, Governing Council agreed to proceed carefully.” — Bank of Canada, 28 October 2026

The case it weighed for holding

Macklem’s opening statement says Governing Council considered “hold or hike.” The argument for holding was that the rise in inflation has so far been concentrated in energy and energy-heavy services such as airfares, and that slack remains in the economy. The argument for hiking, which won, was that fuel prices “are expected to remain higher for longer” and that “the longer energy prices remain high, the more likely it is these costs will spill over to consumer prices more broadly.”

Citizen impact: Variable-rate mortgages and lines of credit tied to bank prime rates typically move with the policy rate, so borrowers on those products should expect higher payments; the Bank itself expects housing “to remain relatively weak.” Deposit and savings rates may edge up. The Bank is explicitly trading some growth for keeping fuel costs from spreading into everything else. The Budget is tabled on 5 November against this backdrop.

What this piece does not say

We do not say by how much any bank’s prime rate or a typical mortgage payment will rise; that depends on each lender, and we have not pulled their notices. We do not forecast the 9 December decision: the Bank says decisions will be taken “one meeting at a time.”

Bottom line

A quarter-point hike to 2.5%, justified by oil-driven inflation the Bank now expects to last through 2027, with the door left open to more. Next decision 9 December; next Monetary Policy Report 27 January 2027.