Bank of Canada Hikes Interest Rates to 2.5%, Its First Increase Since 2023

The Bank of Canada is hiking again, per its October 28 decision.

The Bank of Canada raised its policy rate by 25 basis points to 2.50%, its first increase since July 2023 after seven consecutive holds at 2.25%.

Governing Council said it acted to reduce the risk that persistently high energy prices spread broadly to the prices of other goods and services.

Macklem: Get Ahead of Inflation

"With the outlook for inflation substantially higher and the economy showing resilience, an increase in the policy rate is needed to reduce the risk that elevated energy prices could spill over and become generalized inflation," Governor Tiff Macklem said.

The Bank's October Monetary Policy Report now projects CPI inflation to average about 3% in 2027, a full percentage point above its July projection and the 2% target, before easing back to 2% by mid-2028.

Canadian inflation ran above the Bank's 1% to 3% target range in September, driven almost entirely by energy and energy-related transportation costs.

Macklem signaled further increases could follow, but said the Bank would proceed carefully given the uncertainties.

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What It Means for Markets

Canada moving back into hiking mode while the Fed holds puts the two economies on diverging policy paths, a setup that tends to move the Canadian dollar and rate-sensitive Canadian names.

Watch the Canadian dollar through FXC, Canadian market exposure via EWC, and big Canadian banks like RY and TD into the Bank's next decision on December 9.

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