Bank of Canada Raises Rate for First Time in More Than 3 Years, Signals Further Tightening

The Bank of Canada raised its benchmark interest rate for the first time in more than three years as rising global oil prices added to inflation risks.

Bloomberg reported on October 28 that the Bank of Canada raised its policy rate by 25 basis points to 2.50% from 2.25%. It was the central bank’s first rate increase since 2023.

Higher oil prices drove the move. In a statement, the Bank of Canada said the decision was intended to limit the risk that elevated energy costs spread broadly to the prices of other goods and services. It added that further increases may be needed, though it would proceed cautiously given the uncertainty.

The central bank also sharply raised its inflation outlook. It increased its forecast for consumer price growth next year to 3.1% from 2.0%. Inflation is now projected to return to the 2% target in mid-2028.

It also revised up its growth projections. The forecast for Canada’s economy this year was raised to 1.0% from 0.7%. The outlooks for next year and 2028 were both increased to 2.0% from 1.8%.

Governor Tiff Macklem said a rate increase was necessary because the inflation outlook had risen significantly while the economy remained resilient. The comments indicate the central bank sees less room to maintain an accommodative policy stance if high oil prices persist and inflation pressures continue to build.