Bank of Canada hikes rate to 2.5%, first since July 2023

The Bank of Canada raised its benchmark interest rate by a quarter point to 2.5% on Wednesday, October 28. It was the central bank's first increase since July 2023, and it ended a long stretch of holds as worries grew that surging fuel costs would spread into broader inflation, Canadian Mortgage Professional reported.mpamag.com

The decision came at 9:45 a.m. ET together with the bank's quarterly Monetary Policy Report. Governor Tiff Macklem and Senior Deputy Governor Carolyn Rogers are scheduled to hold a press conference at about 10:30 a.m., according to the Bank of Canada. Markets will watch that event for signs of whether more hikes are coming.bankofcanada.ca

An energy-driven shift

The policy rate had been 2.25% since a quarter-point cut in October 2025. The bank held it there at seven straight meetings, most recently on September 2, when it said the upside risks to inflation had increased. Annual inflation rose to 3.1% in September. Reuters reported that the rise came almost entirely from energy, while core measures eased below 2%. Fuel prices have climbed mainly because of the ongoing US-Iran war, Canadian Mortgage Professional noted.cbc.ca+3

Before the decision, 19 of 34 economists in a Reuters poll predicted a hike to 2.5%. A majority of them also expected one more increase before March 2027. In the previous poll, 80% had expected the bank to hold through the end of 2026. National Bank of Canada economists Taylor Schleich and Ethan Currie wrote that the evidence "leans toward the BoC delivering its first increase since July 2023," citing a further climb in crude prices since early September, Reuters reported.reuters.com+1

Not everyone agreed. Six of seven economists recently polled by the C.D. Howe Institute had urged the bank to hold, saying the economy is still hurting from the US trade war, the Toronto Star reported.stcatharinesstandard.ca

What it means for borrowers

Canada's major lenders are expected to raise their prime rates in response. That would push up variable-rate mortgages and home equity lines of credit, according to Canadian Mortgage Professional. The same outlet said markets expect only mild further increases, not a repeat of 2022. That year, the bank's first hike was followed by another 450 basis points of tightening over 16 months.mpamag.com

The bank's last rate decision of 2026 is set for December 9. If the Reuters poll is right, this would be the shortest Bank of Canada tightening campaign in 30 years, with the rate peaking at 2.75%.reuters.com