Bank of Canada Expected to Raise Interest Rates Next Week in First Hike in Over Three Years
Economists anticipate the Bank of Canada will raise its key interest rate by 0.25 per cent next week, marking the first increase in more than three years. The expected move follows warnings from Governor Tiff Macklem about rising inflation risks linked to the Iran war and elevated oil prices.
Some economists expect the Bank of Canada to raise its key interest rate as early as next week, which would mark the central bank's first rate hike in more than three years. Economists Randall Bartlett of Desjardins, Robert Kavcic of BMO Capital Markets, and Holt all anticipate a 0.25 per cent increase. Bartlett further forecasts an additional 0.25 per cent hike in January.
The Bank of Canada has held its key interest rate unchanged for about a year, keeping the benchmark rate at 2.25 per cent since October 2025. The expectation of a shift comes after Governor Tiff Macklem stated in Bangkok that he expects the outlook for inflation to be "quite a bit higher" than the central bank's last forecast in July.
Consumer price inflation in Canada was measured at 3.1 per cent in September, driven mainly by higher gas prices linked to the Iran war. Despite this elevated headline figure, core inflation has remained closer to two per cent for several months. Analysts warn of a risk that inflation could become entrenched if energy prices remain elevated.
The anticipated Canadian move follows recent action south of the border. The U.S. Federal Reserve hiked its key policy rate last month for the first time in three years, after U.S. inflation topped 3.4 per cent in August.
A rate increase would bring higher borrowing costs for variable-rate mortgages, car loans, tuition, and business loans. However, it is also seen as a potential measure to cool inflation and make life more affordable.