The Bank of Canada's governing council agreed that uncertainty about the future path of interest rates did not mean the bank should do nothing, according to the minutes of its October meeting published on Tuesday, 10 November.

The bank raised its key policy rate by 25 basis points to 2.5% on 28 October, its first increase in more than three years, saying higher energy prices could spread into the cost of other goods and services.

Why the bank acted despite uncertainty

The council noted considerable uncertainty over how higher energy prices and the trade war with the United States would affect inflation. Even so, it concluded it would need to proceed carefully rather than stand still, the minutes said. The council added that the energy shock alone could keep inflation near 3% for over a year.

Canada's annual inflation rate reached 3.2% in September, above the bank's 1% to 3% target range, led almost entirely by higher energy and energy-related transport costs. Core inflation measures were still below the bank's 2% target, but the council said cost pressures were building and would eventually feed into core prices.

What happens next

The council said there could be a need to raise the policy rate further, but that it would take decisions one meeting at a time. The bank expects inflation to reach 3.5% by the end of 2026 and to stay above 3% for much of 2027, according to the summary reported by the Canadian Press. Its next rate decision is due on 9 December.

Some economists felt the bank had moved too soon after a third straight monthly fall in employment, Reuters reported. The bank's own account, however, was that waiting carried its own risk, as set out in the Canadian Press summary.