Bank of Canada raises its key rate to 2.5% from 2.25%
It is the bank's first rate increase since July 2023, and the governor says a further rise could be needed.
Published
The Bank of Canada raised its key interest rate by 25 basis points on Wednesday, to 2.5% from 2.25%. BNN Bloomberg reported that it was the bank's first increase since July 2023.
Governor Tiff Macklem said the outlook for inflation is substantially higher, and that the economy is showing resilience. He said the hike was needed to reduce the risk that high energy prices spread into broader inflation, according to BNN Bloomberg. The Canadian Press reported that Macklem cited cost pressures building in the economy, mainly from war in the Middle East. Statistics Canada reported that inflation rose to 3.1% in September, with higher gas prices as the main driver.
The bank now expects inflation to reach 3.1% in 2027, up from the 2.0% it projected in July. It puts growth in 2026 at 1.0%, up from 0.7% in July, BNN Bloomberg reported. Macklem said a further increase in the policy rate could be needed, but that the bank will proceed carefully given the uncertainties.
Businesses have absorbed rising costs so far. Bank surveys indicate they will pass on more of those costs to customers next year, and the bank warns that further rate increases may be needed to curb inflation.
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