Bank of Canada raises the policy rate by 25 basis points to 2½%

The Bank of Canada increased 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%. The decision follows a period of resilient global economic activity despite elevated energy prices. Growth in major economies such as the United States, euro area, and China has remained robust, though financial conditions have tightened and markets have shown volatility.

In Canada, GDP growth accelerated to 3.3% in the second quarter and is projected at about 2% in the third quarter, exceeding earlier expectations. Consumer spending has remained solid, business investment has rebounded, and exports have strengthened despite sectoral weaknesses linked to US tariffs. The unemployment rate has held steady near 6.5%, while excess supply persists in the economy.

The Bank projects Canadian growth of 1% in 2026 and 2% in 2027 and 2028, a slight upward revision from July. However, inflation remains elevated, averaging around 3% through much of 2027 before easing to 2% by mid-2028. Persistent high oil prices and rising cost pressures, including fuel and imported inputs, are contributing to inflation’s persistence.

To mitigate the risk that high energy prices broaden inflationary pressures, the Governing Council raised the policy rate. While further increases remain possible, the Bank emphasized a cautious approach given ongoing uncertainties, including trade relations and geopolitical developments. The next rate decision is scheduled for December 9, 2026.