Bank of Canada raises its policy rate 25 bp to 2.5% and says more may be needed
Serguey Asael Shinder2 min readThe Bank of Canada raised its target for the overnight rate by 25 basis points to 2.5% on 28 October, with the Bank Rate at 2.75% and the deposit rate at 2.45%. Governing Council said there could be a need to raise the rate further but agreed to proceed carefully given uncertainties.
The Bank's case is inflation persistence. With oil prices and refinery margins elevated, CPI inflation has been around 3% since April and is expected to rise to about 3.5% by the end of the year. Excluding gasoline it was 2.2% in September and core measures remain close to 2%, but the Bank says cost pressures are building and its surveys suggest businesses will pass through more of them over the next year. Near-term household and business inflation expectations have risen, while longer-term ones remain well anchored. The conflict in the Middle East, now in its eighth month, has no clear path to resolution, the Bank notes; it now projects CPI inflation averaging 3% in 2027, a percentage point above its July forecast, before returning to 2% by mid-2028.
Growth has been stronger than expected: second-quarter GDP grew 3.3%, and indicators point to about 2% in the third quarter. The Bank expects a slowdown in the fourth quarter because of new US tariffs, then growth of 1% for 2026 and 2% in 2027 and 2028. Unemployment has been around 6.5% for months, and the Bank still sees some excess supply. The next decision is due on 9 December, and the next Monetary Policy Report on 27 January 2027.
What it means
The hike is pre-emptive: core inflation is near target, but the Bank is acting to stop high energy costs from spreading into other prices while expectations are still anchored. It is doing so with excess supply in the economy and tariffs about to slow growth, which is why "proceed carefully" sits next to "could be a need to increase further".