The Bank of Canada raised its policy rate by a quarter of a percentage point to 2.50 per cent on 28 October, its first increase since July 2023 and its first policy move of any kind in almost a year. The rate had stood at 2.25 per cent since the cut in October 2025, with seven holds in between. The Bank Rate now stands at 2.75 per cent and the deposit rate at 2.45 per cent.

Governing Council said it acted to reduce the risk that continuing high energy prices spread broadly to the prices of other goods and services. Governor Tiff Macklem added that there could be a need to increase the policy rate further, but that given the uncertainties, the Bank would proceed carefully. The decision arrived with the Bank's Monetary Policy Report, its first full forecast update since July.

Why energy forced the Bank's hand

Inflation has been running at around 3 per cent since April, above the Bank's 1 to 3 per cent target range, and the Bank now expects it to rise to about 3.5 per cent by the end of the year. The increase has been driven almost entirely by energy: Brent crude was trading near US$101 a barrel by mid-October, against about US$75 assumed in the July forecast, and the Bank now assumes Brent averages about US$100 in the final quarter of 2026. Consumer prices rose 3.1 per cent in September from a year earlier, with petrol jumping 6.1 per cent in a single month.

Look past energy, and the picture is calmer. Excluding petrol, prices rose 2.2 per cent in September, and the Bank's preferred core measures, CPI-trim and CPI-median, eased to 1.8 and 1.9 per cent, below the 2 per cent target. That is why the decision was close: the Bank said it considered two options, hold or hike. The case for holding was that inflation so far is concentrated in energy and energy-heavy services such as airfares. The case for hiking, which won, was that energy prices are higher, are expected to stay higher, and cost pressures are building. About half of businesses surveyed in the Bank's third-quarter Business Outlook Survey said they planned to pass at least some higher costs on to customers, more than in the previous quarter.

What it means for borrowers

The effect is immediate for anyone on a floating rate. Canada's big banks, RBC, TD, BMO and CIBC, raised their prime rate from 4.45 to 4.70 per cent on the same day, effective 29 October. On an adjustable-rate mortgage of $500,000 with 25 years remaining, a quarter-point rise adds about $70 a month; on $300,000, about $42. Borrowers on fixed-payment variable mortgages see no change to the monthly payment, but more of it goes to interest, slowing the payoff. Existing fixed-rate mortgages are unaffected, since fixed rates follow Government of Canada bond yields rather than the Bank's decision. The five-year bond yield stood at 3.64 per cent on 19 October, up from about 2.6 per cent before late February.

The rise lands on a housing market that was already soft. National home sales fell 7.69 per cent from a year earlier, and the composite benchmark price fell 3.84 per cent to $651,400 in September 2026. Higher borrowing costs add to the pressure on buyers, and the Bank expects housing to remain relatively weak even as growth recovers.

Growth, jobs and what comes next

The Bank's growth forecasts were revised upwards. The Canadian economy grew 3.3 per cent in the second quarter and is expected to grow about 2 per cent in the third, stronger than expected in July, with growth of 1 per cent for 2026 and 2 per cent in each of 2027 and 2028. But the jobs market has weakened: employment fell by 68,000 in September after a 42,000 drop in August, with unemployment at 6.5 per cent, and the losses were uneven, with Quebec down 49,000 and Ontario down 20,000 while Alberta added 23,000. New US tariffs are also expected to slow growth in the final quarter of 2026 before it picks up again in 2027.

On inflation, the Bank now expects prices to average 3 per cent in 2027, a full percentage point above its July projection, before returning to 2 per cent in the middle of 2028. Markets were pricing about four quarter-point increases by the end of 2027, which would take the policy rate to 3.25 per cent. The next decision is on 9 December, without a Monetary Policy Report; the next full report is due on 27 January 2027.

[Source: Bank of Canada](https://www.bankofcanada.ca/2026/10/fad-press-release-2026-10-28/) | [Source: Nesto](https://www.nesto.ca/home-buying/bank-of-canada-rate-announcement/)