Bank of Canada Raises Rates 25 Basis Points to 2.5%, Signals More Hikes Possible on Energy-Driven Inflation

The Bank of Canada raised its benchmark overnight rate by 25 basis points to 2.5% on Wednesday, its first hike since July 2023, and warned further increases may be needed as Middle East conflict pushes up energy prices. September inflation rose to 3.2%, above the central bank's 1%-3% target range, driven mainly by energy and related transportation costs. The bank projects inflation will reach 3.5% by year-end and hold near 3% through most of next year, returning to roughly 2% only by mid-2028. It raised its 2027 average inflation forecast to 3.1% from 2%. Governor Tiff Macklem said the inflation outlook has risen markedly and that the room for keeping monetary policy loose has narrowed. The bank lifted its 2026 growth forecast to 1% from 0.7%, and 2027 and 2028 forecasts to 2% each from 1.8%. The Canadian dollar was little changed at about 1.405 per U.S. dollar. The next rate decision is set for December 9.