Bank of Canada lifts rate to 2.5% and signals more hikes may follow

The Bank of Canada raised its key policy rate by a quarter of a percentage point to 2.5 per cent last month, its first increase since 2023, and its governing council signalled it may need to go further to stop high oil prices from feeding into broader inflation.

In a summary of deliberations released Tuesday, the council said it faced considerable uncertainty and would take monetary policy decisions one meeting at a time. Members pointed to the war in the Middle East, Canada‑U.S. trade relations, global financial conditions and the speed of price pass-through as open risks. The summary said members agreed they would need to continue to take these sources of uncertainty into account when setting monetary policy.

The bank has said since the war began that it would look through the immediate impact on inflation but would not let higher energy costs become broad-based and persistent. With the war in its eighth month and no resolution on the horizon, members exchanged views on whether a higher policy interest rate was needed to mitigate the risk that higher energy costs would spread to other goods and services, the summary said. They agreed monetary policy cannot lower global energy prices but can prevent them from leading to generalized inflation.

The bank raised its outlook for annual inflation to hit 3.5 per cent at the end of this year and remain above three per cent for much of 2027. The summary said higher costs largely haven't been passed through to consumers so far, though the bank's surveys suggest businesses expect to raise some prices over the next year. The next rate decision is scheduled for Dec. 9.