The Bank of Canada raised its trendsetting interest rate to 2.5 per cent on Wednesday, October 28, 2026, marking its first increase since July 2023 and ending a streak of seven consecutive holds in an effort to curb persistent energy-driven inflation.
The central bank’s decision to lift borrowing costs by a quarter of a percentage point shifts monetary policy. Governor Tiff Macklem explained that the adjustment was needed to reduce the risk that high energy costs would ripple across the broader economy and spark generalized price pressures.
Energy Price Spikes and Inflation Projections Through 2028
Behind the central bank’s policy shift lies a persistent surge in fuel and energy expenses. Statistics Canada reported that the consumer price index rose 3.1 per cent year-over-year in September, ticking up from 3.0 per cent in August and landing just above the top of the bank’s 1-to-3-per-cent control range. Energy prices jumped 19.0 per cent over the year, while gasoline prices climbed 27.8 per cent. Without gasoline factored in, the inflation rate sat at 2.2 per cent.
International conflicts, particularly the war in the Middle East, have kept oil markets elevated. Consequently, the bank projects that inflation will reach roughly 3.5 per cent by the end of 2026 and stay at or above 3 per cent through much of next year. According to the bank’s Monetary Policy Report, inflation is expected to remain above 3 per cent through much of 2027—longer than previously anticipated in the July report—before gradually declining and settling around the 2 per cent target by the middle of 2028 as cost pressures fade.
Inflation is projected to remain above 3% through much of 2027—longer than anticipated in the July Report. It then gradually declines and settles around the 2% target by the middle of 2028 as cost pressures fade.
Bank of Canada, Monetary Policy Report via The Globe and Mail
Immediate Pressure on Variable-Rate Mortgages and Consumer Loans
The rate increase translates immediately into higher borrowing costs for households. Variable mortgage holders face direct payment adjustments as major financial institutions move their prime lending rates upward.
Financial product comparison calculations illustrate the immediate financial friction for buyers. For a national average home price of $666,538, a variable mortgage shifting from 3.45 per cent to 3.7 per cent adds $82 more a month and $984 more a year in interest costs. For home equity lines of credit, or HELOCs, a quarter-point bump increases monthly interest obligations by about $12.
Today’s rate hike speaks to the tightrope the BoC has been walking this year. It’s both a pre-emptive strike against widespread inflation and an acknowledgement that Canada’s economic prospects are brighter than the average Canadian might realize.
Clay Jarvis, Ratehub.ca via Moneysense
Canadian Economy Expands While Housing Market Struggles
Despite the tighter monetary stance, economic indicators present a mixed picture. The Canadian economy expanded by 3.3 per cent in the second quarter, displaying resilience through the middle of the year supported by solid consumer spending and a rebound in business investment, particularly in the oil and gas sector. The unemployment rate has held steady around 6.5 per cent for several months. However, Deputy Governor Carolyn Rogers noted that the housing market is already struggling, particularly in Ontario and British Columbia, and that the higher rates will compound those regional pressures.
Growth is expected to moderate in the final quarter of the year under the weight of trade tensions and new U.S. tariffs, with the central bank projecting total economic growth of 1 per cent for 2026, followed by 2 per cent in both 2027 and 2028. Officials have left the door open to additional tightening while emphasizing caution.
Looking ahead, Governing Council agreed we would take future decisions one meeting at a time. There could be a need to raise the policy rate further, but given the uncertainties, we will proceed carefully.
Tiff Macklem, Governor of the Bank of Canada via Moneysense
The central bank will make its next policy announcement on December 9, 2026, while the next comprehensive Monetary Policy Report is scheduled for release on January 27, 2027.