Bank of Canada hikes key interest rate to 2.5%, its first hike since 2023
The Bank of Canada raised its key interest rate by a quarter point to 2.5 per cent on Wednesday, its first increase since July 2023. The bank said inflation has stayed near three per cent since April and could reach about 3.5 per cent by year-end as high energy prices spread. Lenders are expected to raise prime rates, lifting costs for variable-rate mortgages and credit lines.
- The Bank of Canada raised its policy interest rate by 25 basis points to 2.50 per cent in Ottawa on Wednesday, October 28 — its first rate increase since July 2023 and its first policy change in almost a year. The Bank Rate rose to 2.75 per cent and the deposit rate to 2.45 per cent.
- Inflation is the reason: the consumer price index has hovered around three per cent since April and rose 3.1 per cent in September, and the bank now expects it to reach about 3.5 per cent by the end of the year, driven by higher energy prices as the war in the Middle East keeps oil prices high for longer.
- Strip out gasoline and September inflation was just 2.2 per cent, with core measures still hovering near two per cent — but pricey fuel is pushing up what businesses pay to make and move goods, and imported industrial and electronics parts cost more too.
- Companies have so far swallowed most of the extra cost themselves; the bank's surveys point to more of it being handed on to shoppers over the coming year, which would keep inflation sticky for longer.
- For 2027, the bank now pencils in inflation averaging roughly three per cent — a point higher than it forecast back in July — and does not see a return to its two per cent target until mid-2028.
- Growth has picked up through the middle of the year, and the bank expects growth of about two per cent in the third quarter, although new U.S. tariffs are expected to slow activity in the fourth quarter and housing is expected to remain relatively weak.
- The bank left the door open to another increase, saying there could be a need to raise the policy rate further, but that the Governing Council agreed to proceed carefully and take future decisions one meeting at a time. The next scheduled announcement is December 9.
- Lenders are expected to raise their prime rates in response, which increases payments for adjustable-rate mortgage borrowers and interest costs for Canadians with variable-rate mortgages and home equity lines of credit.
Source: CBC News. Visit the CBCNEWSAPP for the full story.
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