Bank of Canada raises key rate to 2.5%, first hike since 2023

The Bank of Canada raised its policy interest rate by 0.25 percentage points to 2.5 per cent on Wednesday, ending a year of holding at 2.25 per cent and warning that more increases could follow.

For anyone in Metro Vancouver with an adjustable-rate mortgage, the change means a bigger bill. Lenders adjust their prime rates in response to the Bank's moves, and homeowners with those loans will face higher monthly payments as a result. Daily Hive described the decision as the first hike since July 2023.

The Bank pointed to the prolonged U.S.-led conflict in the Middle East, which has kept oil prices elevated and raised production and transportation costs. It expects inflation to reach about 3.5 per cent by the end of 2026 and to average three per cent in 2027, before returning to its two per cent target in mid-2028. It forecasts Canadian economic growth of one per cent this year and two per cent in both 2027 and 2028.

Prices were already moving the wrong way. The Consumer Price Index rose from three to 3.1 per cent in September, largely because of oil prices, according to Clay Jarvis of Ratehub.ca.

Governor Tiff Macklem's announcement said the policy rate could need to rise further, but that Governing Council agreed to proceed carefully.

The move was not a sure thing. The Bank held at 2.25 per cent in September, citing the Middle East conflict and the Canada–U.S. trade war. Ahead of Wednesday's decision, Jarvis predicted a hold was more likely than a hike, while Scotiabank's Derek Holt and Desjardins expected an increase.

TD economist Marc Ercolao said the Bank is hiking from a risk-management perspective, to keep inflation on target. He suggested another 0.25 percentage point increase, to 2.75 per cent, would add protection against persistent inflation.

The timing is awkward for housing. Royal LePage CEO Phil Soper said higher borrowing costs will deepen the challenge facing Canada's weak housing sector.

The next three rate announcements are scheduled for Dec. 9, 2026, Jan. 27, 2027, and March 3, 2027. Variable-rate borrowers will be watching the first of those most closely.