Bank of Canada raises policy rate by 25 basis points to 2.5%
- Central bank hikes overnight rate target to curb risk of high energy prices spreading broadly to other goods, services
Loading…
Loading…
- Central bank hikes overnight rate target to curb risk of high energy prices spreading broadly to other goods, services
By Gokhan Ergocun
ISTANBUL (AA) - The Bank of Canada raised its target for the overnight interest rate by 25 basis points to 2.5% on Wednesday to counter persistent inflation pressures driven by high energy prices.
The central bank also set the bank rate at 2.75% and the deposit rate at 2.45%, it said in a policy statement.
Policymakers decided to hike the benchmark rate to reduce the risk that continuing high energy prices spread broadly to the prices of other goods and services.
"There could be a need to increase the policy rate further, but given uncertainties, Governing Council agreed to proceed carefully," the bank said.
Driven by persistently high oil prices as the conflict in the Middle East enters its eighth month, consumer price inflation in Canada has hovered around 3% since April and is projected to climb to about 3.5% by the end of 2026.
Excluding gasoline, inflation stood at 2.2% in September, while core inflation measures remained close to 2%.
However, the bank warned that cost pressures are building as elevated fuel prices raise production and transportation costs alongside higher prices for imported industrial and electronics inputs.
Consumer inflation is projected to average 3% in 2027, up one percentage point from the bank's July forecast, before easing to 2% by mid-2028.
Canada's economy grew 3.3% in the second quarter and is estimated to have expanded by about 2% in the third quarter, outperforming the central bank's July projections on solid consumer spending, rebounding business investment and stronger exports.
The unemployment rate has remained near 6.5% for several months.
While new US tariffs are expected to slow economic growth in the fourth quarter of 2026, activity is forecast to pick up in 2027 on the back of business investment, exports and fiscal measures.
The central bank expects Canada's gross domestic product to grow 1% in 2026 and 2% in both 2027 and 2028, though it noted considerable uncertainty surrounding Canada-US trade relations.
On the global outlook, the bank slightly raised its 2026 world economic growth forecast to 3.1% while keeping its projections for 2027 and 2028 unchanged at 3.2%.
Global activity has remained resilient despite higher energy prices, supported by robust US consumer spending and artificial intelligence investment, broad-based eurozone growth and a third-quarter rebound in China, the bank added.
Gökhan Ergöçün