# Bank of Canada Raises Interest Rates to 2.5 Percent Persistent inflation triggers first rate hike since 2023 with warnings of further increases. - **Source:** [Financial Post - Top Stories](https://financialpost.com/) - **Published:** 2026-10-28 - **Topic:** [Finance](https://brifing.si/c/finance) - **Original article:** - **On Brifing:** https://brifing.si/s/f434deb0-8d1f-4c2f-b5aa-ad5b1be8017f ## Rate Hike Implementation The Bank of Canada increased its key interest rate by 25 basis points to 2.5 percent this Wednesday. This move marks the first rate hike since 2023, driven by concerns over persistent inflation. Governor Tiff Macklem indicated that additional increases remain possible as the bank monitors economic data on a meeting-by-meeting basis. ## Inflation Forecast Revisions The central bank’s October Monetary Policy Report projects inflation will stay above three percent through 2026 and much of 2027. Forecasts for 2026 were revised upward to 2.9 percent, while 2027 estimates rose to 3.1 percent. Stubborn energy prices and rising non-energy import costs are identified as the primary drivers of this pressure. ## Economic Growth Outlook Despite inflationary pressures, the bank raised its real GDP growth projections. The economy is expected to grow by one percent in 2026, strengthening to two percent in 2027 and 2028. This optimism is supported by strong consumer spending, increased exports, and the impact of the newly announced Productivity Mega Deduction for businesses. ## Corporate Pass-Through Risks The bank’s Business Outlook Survey reveals that roughly half of surveyed firms plan to pass rising fuel costs onto consumers by year-end. Governor Macklem emphasized that monetary policy must be forward-looking to prevent these energy costs from triggering broader price increases across other goods and services, ultimately aiming to protect the inflation target. ## Economist Market Reactions Analysts describe the inflation outlook as jarring, noting the extended timeline for returning to price stability. Taylor Schleich of the National Bank of Canada suggests that a single hike may be insufficient, predicting another 25-basis point increase in December. The absence of a core inflation forecast in the latest report surprised several market observers. ## Policy Uncertainty Factors The central bank noted that both inflation and growth outlooks remain fluid due to external risks. Heightened uncertainty surrounding the war in the Middle East and evolving U.S. trade policy complicates future decision-making. Officials are currently operating within a neutral rate range of 2.25 percent to 3.25 percent, placing the current rate centrally. ## Conflicting Economic Indicators While the central bank focuses on inflation, some economists highlight signs of economic cooling. Shelly Kaushik of BMO Capital Markets points to negative employment growth in recent Labour Force Surveys and a weak housing market. These factors create a complex environment where the bank must balance aggressive tightening against potential risks to economic resilience. ## Future Policy Trajectory The Bank of Canada maintains that it will not prejudge future moves, opting for a data-dependent approach. While some experts anticipate further hikes in early 2027, the bank remains conscious of high uncertainty levels. Future decisions will rely on the best available information to mitigate energy cost pass-through and stabilize the Canadian economy. ## Sources covering this story - https://financialpost.com/news/economy/bank-of-canada-hikes-interest-rate-october-28 — --- _Summary written by Brifing from the original reporting. Copyright in the original article belongs to its publisher; read the full piece at the link above._