Canada’s central bank raised its benchmark overnight rate by 0.25 percentage points to 2.5% on Wednesday, October 28, its first increase since July 2023, and warned that energy-driven inflation could spread and another increase might be needed.
The Bank had kept the rate at 2.25% for seven consecutive decisions. This was its first change in policy in about a year. Officials pointed to persistently high oil prices and refinery costs amid the Middle East conflict as risks that could raise prices beyond fuel and transportation.
Annual inflation was 3.1% in September, largely because of energy costs. The Bank said measures of underlying inflation remained close to 2%. In its new outlook, the Bank projected inflation could reach about 3.5% by the end of the year and stay near 3% through much of 2027.
It projected inflation would return close to its 2% target around the middle of 2028. Governor Tiff Macklem said the increase was intended to limit the spread of higher energy and business costs into prices for other goods and services. He said the rate was still low enough not to restrain economic growth.
The Bank judged an increase was prudent because the economy showed more resilience than expected. Officials said another increase remained possible if price pressures spread to more goods and services. They also signaled they would proceed carefully because energy prices and trade remained uncertain.