Bank of Canada Raises Policy Rate to 2.5% and Signals Further Increases Are Possible

The Bank of Canada increased its benchmark overnight interest rate by 25 basis points to 2.50% on Wednesday, October 28, 2026, its first rate increase since July 2023. The decision followed a prolonged period in which the central bank had kept borrowing costs unchanged while assessing the impact of elevated global energy prices on Canadian inflation.

Governor Tiff Macklem said in remarks accompanying the decision that sustained energy costs could spread beyond fuel into prices charged by other businesses. The bank is concerned that companies which initially absorbed higher input costs may increasingly pass those expenses on to customers. The rate increase is intended to limit the risk of a wider, more persistent rise in consumer prices.

The central bank's updated outlook projects inflation to remain above its 2% target in the near term, before returning close to that target around the middle of 2028. Its assessment also acknowledges that Canada's economy has shown more resilience than previously anticipated, even as trade tensions and higher borrowing costs create uncertainty for households and businesses.

Macklem indicated that additional rate increases could be needed, but did not commit to a timetable. The bank said it would assess incoming evidence and proceed carefully. Its next scheduled interest-rate decision is December 9.

A higher policy rate can affect variable-rate mortgages, business credit and other borrowing costs, although the timing and size of changes to retail lending rates depend on individual lenders. The decision is a monetary-policy action, not a forecast that further increases have already been approved.