Bank of Canada Raises Interest Rate to 2.5% in First Hike Since 2023
The Bank of Canada increased its policy interest rate by a quarter of a percentage point to 2.5 per cent, citing risks that high energy prices from the Middle East war could lead to persistent inflation. A summary of deliberations released Tuesday shows the governing council is proceeding cautiously amid global uncertainty.
The Bank of Canada raised its policy interest rate by a quarter of a percentage point to 2.5 per cent, marking the first rate increase since 2023. A summary of the governing council's deliberations was released on Tuesday.
The council cited considerable uncertainty regarding the war in the Middle East, Canada-U.S. trade relations, and global financial conditions as factors influencing their cautious approach. The bank stated it would "look through" the direct impact of the Middle East war on inflation but aims to prevent higher energy prices from causing broad-based persistent inflation. The war in the Middle East is currently in its eighth month with no resolution on the horizon.
The Bank of Canada raised its annual inflation outlook to hit 3.5 per cent at the end of this year. Inflation is projected to remain above three per cent for much of 2027. Higher costs have largely not been passed through to consumers so far, but businesses expect to raise some prices over the next year.
The governing council indicated it will make decisions one meeting at a time. The next scheduled interest rate decision is set for Dec. 9.