Rates

Bank of Canada raises its rate to 2.5%, its first hike since 2023

The Bank of Canada raised rates a quarter point to keep high oil prices from spreading into broader inflation. RBC raised its prime rate the same day, and markets see roughly even odds of another hike in December.

By John Wilson · October 28, 2026

The Bank of Canada raised its key interest rate on Wednesday for the first time since July 2023. The 25-basis-point increase takes the overnight rate target to 2.5%, the Bank Rate to 2.75% and the deposit rate to 2.45%. Governor Tiff Macklem said the inflation outlook has "deteriorated" since July, and that the hike is needed to reduce the risk that elevated energy prices spill over into broader inflation.

Borrowers felt it within hours. RBC raised its prime rate by 25 basis points, from 4.45% to 4.70%, effective Oct. 29, and other banks are expected to follow, The Globe and Mail reported.

The new forecasts

The Bank's October Monetary Policy Report expects CPI inflation, which has been around 3% since April, to climb to about 3.5% by year-end. It is projected to average 3% in 2027 and not return to the 2% target until mid-2028. The source is energy. Inflation excluding gasoline was 2.2% in September, and the core measures remain close to 2%. Brent crude has averaged $124.96 a barrel in October, about $35 more than in July, BNN Bloomberg reported. The conflict in the Middle East is now in its eighth month.

The Bank expects growth of 1% in 2026, then 2% in both 2027 and 2028. GDP grew 3.3% in the second quarter, and indicators point to about 2% in the third, but the Bank expects new U.S. tariffs to slow growth in the fourth.

A split among forecasters

The decision was not a lock. Citi's Veronica Clark said the hike surprised her. She expects no further increases and pencils in two cuts next year. Economist David Rosenberg called it "totally unnecessary and premature." Others see more to come. TD expects one more quarter-point hike in early 2027, to 2.75%. Desjardins' Royce Mendes called a December move a "coin flip."

Senior Deputy Governor Carolyn Rogers said a hold was debated ("We always do that"), but said the decision reflected a "very strong consensus." Money markets priced about a 42% chance of another hike on Dec. 9, according to Bloomberg data cited by The Globe and Mail. Macklem said there "could be a need to raise the policy rate further, but given the uncertainties we will proceed carefully."

The risk on the other side

The Bank is raising rates into a soft job market. Unemployment has hovered around 6.5% for several months, and Ottawa is still trying to get relief from U.S. tariffs. If oil falls back or the trade fight hits harder than expected, the hike could look premature in hindsight. That is Rosenberg's argument. The Bank's own case rests on a survey finding that 60% of consumer-facing businesses expect to pass higher costs on to customers within a year.

What it means for you

Variable-rate mortgages and lines of credit tied to prime will cost more almost right away. In a Ratehub example cited by The Globe and Mail, a variable rate rising from 3.45% to 3.70% on a $666,538 home with 10% down adds $82 a month, or $984 a year. The average home equity line balance is just under $59,000, according to Equifax, and its interest would rise by about $12 a month.

Fixed-rate mortgages follow bond yields rather than prime, so borrowers renewing soon should compare offers rather than assume the worst. Savers may see slightly better rates on high-interest savings accounts. This article is general information, not financial advice.

Sources

General news and information, not individualized financial advice. Figures reflect the publication date.