Bank of Canada lifts key rate to 2.5 per cent, its first hike in three years, and signals more may follow

What happened

The Bank of Canada raised its key policy rate by 25 basis points to 2.5 per cent on Wednesday, Oct. 28, 2026, its first increase since July 2023 after holding the rate at 2.25 per cent since last October. Governor Tiff Macklem said the move was needed because "the outlook for inflation substantially higher and the economy showing resilience" created a risk that elevated energy prices "could spill over and become generalized inflation." He also flagged that further tightening is on the table: "There could be a need to raise the policy rate further, but given the uncertainties, we will proceed carefully," with decisions taken "one meeting at a time." The hike responds to a global energy shock tied to the war in the Middle East, with the US-Iran conflict having closed the Strait of Hormuz to most oil tanker traffic, and to fears that higher gas prices will become permanently embedded in the prices of goods including groceries. September's annual inflation rate rose to 3.1 per cent from 3.0 per cent, driven by gas prices, while inflation excluding energy eased to 2.2 per cent from 2.4 per cent and the bank's two preferred core measures each slipped a notch to 1.9 and 1.8 per cent. The bank now forecasts inflation will reach 3.5 per cent by the end of 2026, average about 3 per cent next year, roughly a percentage point above its July outlook, and return to the 2 per cent target by mid-2028. It upgraded real GDP growth to 2 per cent for 2027 and 2028, against 1 per cent in 2026, citing higher oil prices and supportive fiscal policy, while warning that US tariffs are expected to pull real GDP down to 0.8 per cent in the fourth quarter. The bank flagged considerable uncertainty around both the Middle East conflict and US trade policy. Reporting on the decision came via Rocky Mountain Outlook, carrying The Canadian Press, and Telegraph-Journal.

Why it matters

This is the first tightening in more than three years from a central bank whose rate previously crested at 5 per cent, and the turn comes even as underlying price pressure looks tame: core measures at 1.9 and 1.8 per cent sit below target, and inflation excluding energy actually cooled last month. The bank is effectively pre-empting a second-round effect, betting that acting now stops energy-driven price increases from feeding into wages and broader prices, a judgment Canadian bank economists are already contesting. The regional dimension is sharp: in New Brunswick, regular unleaded gas jumped from a maximum of 133.4 cents per litre to 185.2, down from over $2 in September, and provincial inflation hit 5 per cent in September, the highest since February 2023. Households and variable-rate borrowers face higher borrowing costs while food inflation is forecast to average around 4 per cent in 2027, and the bank's own growth outlook, 2 per cent for 2027 and 2028, sits alongside a tariff-dented 0.8 per cent for the fourth quarter of this year, a narrow path between an energy shock and a trade shock. The accompanying technical rates moved with the policy rate, with the Bank Rate set at 2.75 per cent and the deposit rate at 2.45 per cent, the levels that flow through to pricing on floating-rate loans across the banking system.

How it is being covered

Ground News counts 54 sources carrying the story, 40 of them rated, with a left/centre/right split of 63/27/10 per cent and 29 of the 40 rated outlets scoring high on factuality, 11 of those very high and none low, very low or mixed. The coverage skews heavily left and center, and Ground News flags a blindspot on the right, noting that only 10 per cent of the coverage leans Right. The two named reports take different angles: the Canadian Press wire account frames the decision nationally through the bank's forecasts, while the Telegraph-Journal grounds it in New Brunswick's pump prices and provincial inflation reading.

What to watch

The next scheduled decision falls on Dec. 9, and CIBC senior economist Andrew Grantham expects the bank to pause there before delivering another quarter-point hike in January, arguing core inflation is unlikely to accelerate as much as the bank fears. Watch whether the energy shock broadens beyond fuel into grocery and services prices, the exact channel Macklem says the hike is designed to cut off; several other central banks, including the US Federal Reserve, raised rates last month partly in response to energy prices, so the degree of international alignment will matter. Also watch the bank's two inflation forecasts that bracket the risk: 3.5 per cent by end-2026 and a return to 2 per cent by mid-2028, and any movement on US trade policy that could deepen the flagged fourth-quarter GDP dip.

By the numbers

Source snapshot