Canada: Bank of Canada raises policy rate to 2.50% on 28 October 2026

The Bank of Canada raised its target for the overnight rate by 25 basis points to 2.50% on 28 October 2026, with the Bank Rate at 2.75% and the deposit rate at 2.45%. Governor Tiff Macklem said it is the first interest rate increase since July 2023, and the Bank linked the move to inflation that has stayed high for months rather than fading as it had hoped.

What changed

Consumer price inflation has been around 3% since April 2026 and is expected to rise to about 3.5% by the end of the year, then average 3% in 2027 before returning close to 2% by the middle of 2028. That 2027 figure is a full percentage point above the Bank's July projection. Excluding gasoline, inflation was 2.2% in September, with core measures close to 2%, so the pressure the Bank is acting on is energy-led rather than broad-based at this point.

Persistently high oil prices sit behind the decision, along with a conflict in the Middle East now in its eighth month with no clear path to resolution. Businesses have mostly absorbed higher input costs so far, but Bank surveys suggest more of those costs will reach consumers over the next year, and the Bank said the increase is needed to stop high energy prices spreading into the prices of other goods and services.

Growth, meanwhile, has picked up. Gross domestic product grew 3.3% in the second quarter, recent indicators point to about 2% in the third quarter, and the Bank expects growth of 1% in 2026 and 2% in 2027 and 2028, with new United States tariffs slowing the fourth quarter of 2026 before growth picks up again in 2027. The unemployment rate has been around 6.5% for several months.

Who it affects

People in Canada with borrowing linked to lenders' prime rates feel this first, including variable-rate mortgages, home equity lines of credit and other prime-linked credit. Lenders set their own prime rates. If they raise them after the decision, adjustable-rate mortgage borrowers would then pay more each month, while borrowers with fixed payments on a variable mortgage would pay more interest and repay principal more slowly. Existing fixed-rate mortgages do not change during their term.

Savers may see better offers on deposit accounts and newly purchased guaranteed investment certificates if institutions raise their rates, though that is not certain, and existing fixed-rate certificates keep their contracted rate.

What it means in general terms

A higher policy rate raises borrowing costs across the economy and is meant to keep inflation from becoming embedded. The Bank said there could be a need to raise the rate further, but that Governing Council agreed to proceed carefully given the uncertainty, and that it remains committed to maintaining Canadians' confidence in price stability. The next scheduled announcement is 9 December 2026.