Policy rate rises to 2.5 percent as energy costs threaten inflation
Persistent energy costs prompted the Bank of Canada (BoC) to raise its policy rate by 25 basis points to 2.5 percent. Governing Council discussed holding at 2.25 percent but judged that broader inflation risks warranted an increase.
Energy pressure outweighs remaining slack
On October 28, 2026, Governing Council raised rates to limit energy cost transmission into broader prices.
Core inflation remained near 2 percent; CPI excluding gasoline was 2.2 percent.
Total inflation had been around 3 percent since April.
The BoC projected 3.5 percent inflation at end-2026, above 3 percent through much of 2027 and a return to 2 percent by mid-2028.
Businesses planned more cost pass-through over the next year.
GDP grew 3.3 percent in Q2, with roughly 2 percent growth indicated for Q3. Annual growth forecasts rose to 1 percent for 2026, followed by 2 percent in 2027 and 2028.
Unemployment remained around 6.5 percent.
Remaining slack, new US tariffs and weaker business sentiment supported the case for holding, but members agreed stronger growth would reduce slack.
Oil stays higher for longer
Deliberations began October 20 with Tiff Macklem, Carolyn Rogers, Toni Gravelle, Nicolas Vincent, Michelle Alexopoulos and Marc-André Gosselin attending.
Middle East conflict, in its eighth month, restricted oil supply; benchmark oil was about US$35 per barrel above the July assumption.
Global growth was projected around 3 percent.
US consumption and AI investment supported activity, while energy costs weighed on importers.
Members differed on cost pass-through and labor market strength.
Longer-term inflation expectations remained anchored.
Further increases remain conditional
The Council said monetary policy cannot lower global energy prices but can prevent generalized inflation.
Members agreed that further rate increases might be needed.
They would decide one meeting at a time, accounting for uncertainty over war, trade, financial conditions and cost pass-through.