Bank of Canada hikes to 2.5%, sees inflation rising to about 3.5% by year end

The Bank of Canada raised its target for the overnight rate by a quarter of a percentage point to 2.5% on 28 October 2026, saying it wanted to cut the risk that persistently high energy costs spread into a wider range of prices. The Bank Rate is now 2.75% and the deposit rate 2.45%, according to the rate announcement, released in the bank's regular 9:45 a.m. ET slot (14:45 CET) with the October Monetary Policy Report. The target had stood at 2.25% since a quarter-point cut on 29 October 2025 and was then left unchanged at seven decisions, the bank's rate history shows.

In the opening statement to the press conference that followed, set for about 10:30 a.m. ET (15:30 CET), Governor Tiff Macklem said Governing Council had weighed two options: hold or hike. The chief argument for holding, Macklem said, was that the rise in inflation had so far come mainly from energy and energy-heavy services such as airfares, with CPI inflation excluding gasoline at 2.2% in September, core measures near 2% and slack still in the economy. The case for a rise was that energy prices are expected to stay high, cost pressures are building, and the longer that lasts, the more likely those costs are to reach consumer prices broadly.

The new projections in the announcement put inflation higher and for longer than in July. Consumer price inflation has hovered near 3% since April; the bank expects about 3.5% by the end of 2026 and a 3% average in 2027, a percentage point above its July projection, before a return to 2% by mid-2028. It points to oil prices and refinery margins that have stayed high, and to its surveys suggesting businesses will pass on more input costs over the next year. On growth, the bank now forecasts 1% for 2026 and 2% for 2027 and 2028, somewhat stronger overall than in July, though it expects new US tariffs to slow activity in the fourth quarter.

Macklem said the council would decide its next moves meeting by meeting; the next is due on 9 December 2026. The announcement says "there could be a need to increase the policy rate further, but given uncertainties, Governing Council agreed to proceed carefully" (rate announcement). The bank names the conflict in the Middle East, now in its eighth month, and how businesses respond to cost pressures as the main uncertainties for its inflation forecast. Its report ranks energy prices and Canada-US trade ties as the two most important risks to its inflation outlook.