Bank of Canada raises key rate to 2.5%, its first hike since 2023, and says more may be needed

As of 12:56 p.m. ET, Wednesday, Oct. 28, 2026

The Bank of Canada on Wednesday raised its target for the overnight rate by 25 basis points to 2.5%, its first interest rate increase since July 2023, and said further hikes might be needed. The Bank Rate is now 2.75% and the deposit rate 2.45%, the bank said in its announcement.

The move was widely expected, Reuters reported.

The bank's Governing Council said it decided to raise the rate "to reduce the risk that continuing high energy prices spread broadly to the prices of other goods and services." It added: "There could be a need to increase the policy rate further, but given uncertainties, Governing Council agreed to proceed carefully."

"With the outlook for inflation substantially higher and the economy showing resilience, an increase in the policy rate is needed to reduce the risk that elevated energy prices could spill over and become generalized inflation," Governor Tiff Macklem said in his opening statement to reporters. He said the Governing Council would take future decisions "one meeting at a time."

Inflation and growth outlook

In its October Monetary Policy Report, the bank said CPI inflation is expected to average 3% in 2027, a percentage point above its July projection, before coming down to 2% in the middle of 2028. Inflation has been around 3% since April and is expected to rise to about 3.5% by the end of the year, it said, while inflation excluding gasoline was 2.2% in September and core measures remain close to 2%.

The bank now expects the Canadian economy to grow 1% in 2026, up from 0.7% forecast in July, Reuters reported, and 2% in both 2027 and 2028. It said new U.S. tariffs are expected to slow growth in the fourth quarter before a pickup in 2027.

Even after the increase, the policy rate remains below the 2.75% midpoint of the bank's estimated neutral range, Reuters reported.

The bank's next scheduled rate decision is on Dec. 9.