Bank of Canada Raises Rate to 2.5%, Its First Hike Since 2023

What happened

The Bank of Canada raised its key interest rate by a quarter of a percentage point to 2.5% on Wednesday, Oct. 28. It is the bank’s first rate increase since July 2023 and its first move of any kind in about a year, The Canadian Press reported via BNN Bloomberg.

The decision came at 9:45 a.m. ET alongside the bank’s quarterly Monetary Policy Report. In its statement, reproduced by ActionForex, the bank said inflation is turning out “higher and more persistent” than it expected in July. The other two rates it sets also rose: the Bank Rate to 2.75% and the deposit rate to 2.45%.

The move was widely expected. A Reuters poll found 19 of 34 economists predicting it, and money markets put the odds at about 77% the morning of the decision, according to Reuters.

Why the Bank of Canada raised rates now

The short answer is oil. Higher energy prices tied to the Middle East conflict, now in its eighth month, have pushed Canada’s inflation rate to about 3% since April. Statistics Canada’s September reading was 3.1%, according to investingLive, near the top of the bank’s 1% to 3% target range.

Macklem has said the bank can “look through” a temporary jump in gas prices, since raising rates can’t make oil cheaper. What changed its mind is the risk of spillover. Its business surveys suggest companies that have mostly absorbed higher fuel and shipping costs so far plan to pass more of them on to customers over the next year. Governor Tiff Macklem said the mix of high energy prices and that pass-through “increases the persistence of inflation,” per The Canadian Press.

Back in September, Macklem gave a rule of thumb for how this works: in normal times, a 10% rise in oil prices adds about 0.2 percentage point to inflation, Yahoo Finance Canada reported.

The case against the hike

Not everyone agreed with the move. Core inflation, which strips out volatile items like gasoline, is still close to 2%, the bank’s own midpoint. Inflation excluding gasoline was 2.2% in September. Unemployment has hovered around 6.5% for months, and new U.S. tariffs are expected to slow the economy at the end of the year. Some economists argued a hike could choke off a modest recovery, The Canadian Press reported.

The new forecasts

The bank expects inflation to get back to its 2% target only around mid-2028. Growth has been stronger than it thought, at 3.3% annualized in the second quarter and about 2% in the third, before tariffs slow things to about 0.8% in the fourth quarter.

What it means for borrowers

The rate hike doesn’t undo much ground. It simply puts the policy rate back where it was before the bank’s last cut, on Oct. 29, 2025, when it went from 2.5% to 2.25%, Global News noted.

Variable-rate borrowers feel it first, because lenders’ prime rates track the bank’s rate. Using standard Canadian mortgage math (25-year amortization), a quarter-point rise from 4% to 4.25% adds roughly $14 a month for every $100,000 owed. On a $500,000 balance, that’s about $68 more a month, or a little over $800 a year, matching an example Yahoo Finance Canada ran in September. Some variable mortgages keep the payment fixed, in which case more of each payment goes to interest instead.

Fixed mortgage rates follow government bond yields rather than the policy rate directly, so they can move before or after the bank does.

What happens next

The bank said there “could be a need to increase the policy rate further,” but added that it will proceed carefully given the uncertainty around the Middle East, how businesses handle rising costs, and trade with the U.S. Most economists in the Reuters poll expected one more increase before March.

The next rate decision is Dec. 9, 2026, and the next full forecast comes Jan. 27, 2027. South of the border, the U.S. Federal Reserve was expected to hold its rate steady later the same day, according to Reuters.

Quick answers

What is the Bank of Canada’s interest rate now?

2.5%, after the Oct. 28, 2026, increase of 0.25 percentage point.

Will my mortgage payment go up?

If you have a variable-rate mortgage, likely yes, once your lender raises its prime rate; it’s about $14 a month per $100,000 at typical rates. Fixed-rate payments don’t change until renewal.

When is the next Bank of Canada decision?

Dec. 9, 2026.