The Bank of Canada raised its key interest rate by a quarter-point to 2.5% on Oct. 28, its first increase in more than three years, and warned it may need to raise rates further if energy-related inflation spreads.
The move raised the target for the overnight rate from 2.25% to 2.5%. The Bank Rate is now 2.75%. The deposit rate is 2.45%.
The Bank said it acted to limit the risk that high energy costs will push up prices across the wider economy. Consumer inflation was 3.1% in September and had remained near 3% since April. The Bank expects inflation could reach about 3.5% by year-end.
Some measures showed lower inflation. Inflation excluding gasoline was 2.2% in September. Core measures remained close to the Bank’s 2% target.
Officials said costs for fuel, transportation and imported goods used in production are increasing. Businesses may pass more of those costs on to customers. The Bank did not rule out another increase.
It said it would act carefully because of uncertainty. Canada’s economy remained strong, with growth picking up through midyear. The Bank also expects new U.S. tariffs to reduce economic activity later in 2026.
The increase may raise costs for borrowers with variable-rate loans and mortgages as lenders adjust rates. The Bank’s next steps will depend on whether inflation pressures spread and continue.