Bank of Canada raises its policy rate by 25 basis points to 2.5%

The Bank of Canada raised its target for the overnight rate by 25 basis points to 2.5% on 28 October 2026. The Bank Rate is now 2.75% and the deposit rate 2.45%.

Why the Bank says it moved

The Governing Council said it raised the rate to reduce the risk that continuing high energy prices spread to the prices of other goods and services. CPI inflation has been around 3% since April and the Bank expects it to rise to about 3½% by the end of the year. Excluding gasoline, inflation was 2.2% in September, and core measures remain close to 2%. The Bank now expects CPI inflation to average 3% in 2027, a percentage point above its July projection, before coming down to 2% in the middle of 2028.

The Bank pointed to the conflict in the Middle East, now in its eighth month, and to business surveys suggesting that more cost increases will be passed on to customers over the next year.

Growth and markets

Canadian GDP grew 3.3% in the second quarter, and the Bank says recent indicators point to growth of about 2% in the third quarter. It expects growth to slow in the fourth quarter because of new US tariffs, and projects growth of 1% in 2026 and 2% in 2027 and 2028. Unemployment has been around 6½% for several months.

On markets, the Bank said global financial conditions have tightened since July, with higher advanced-economy bond yields and volatile equity and credit markets. The Canadian dollar weakened on US-dollar strength but has since recovered to around 71 cents, the level assumed in July.

What comes next

The Bank said there could be a need to raise the policy rate further, but that the Governing Council agreed to proceed carefully given the uncertainties. Its next scheduled rate announcement is on December 9, 2026, and the next Monetary Policy Report is due on January 27, 2027. The decision came on the same day the US Federal Reserve held its rates (read our brief).