Bank of Canada Raises Its Rate to 2½%, the First Increase Since 2023

The Bank of Canada raised its policy interest rate by 25 basis points to 2.5 per cent on Wednesday, October 28, 2026, its first increase since July 2023. Governing Council said it moved to reduce the risk that high energy prices, tied to the conflict in the Middle East, spread into the prices of other goods and services.

A basis point is one hundredth of a percentage point, so the change is a quarter of a point. It reaches households at different speeds: at once through loans priced off a lender's prime rate, more slowly through fixed mortgage rates and savings products, and through the Canadian dollar.

What the Bank of Canada decided on October 28, 2026

The policy rate is the Bank's target for the overnight rate, the rate at which major financial institutions lend one another money for a day. It rose to 2.5 per cent from 2.25 per cent. The Bank Rate, which the Bank charges on short loans to those institutions, rose to 2.75 per cent, and the deposit rate it pays on their balances rose to 2.45 per cent, according to the press release.

The increase ends a pause that began when the Bank cut to 2.25 per cent on October 29, 2025. It held there at all six of its earlier decisions in 2026, according to its policy rate history.

Governor Tiff Macklem said in his opening statement that "Governing Council considered two policy options: hold or hike." The case for holding, he said, was that inflation was concentrated in energy and energy-intensive services and that the economy still had some slack.

Why the Bank of Canada raised rates in October 2026

Most prices are rising at a moderate pace. Statistics Canada reported on October 19 that the Consumer Price Index rose 3.1 per cent in the year to September, and 2.2 per cent excluding gasoline, which cost 27.8 per cent more than a year earlier. The core measures the Bank follows, which set aside the most extreme price changes, were lower again, with CPI-trim at 1.8 per cent.

The Bank's concern is the next step. Picture a bakery that has paid more to fuel its delivery vans for six months without changing its prices. Sooner or later the bread costs more, and when enough businesses do the same, a gasoline problem becomes a general inflation problem. Macklem said businesses had so far absorbed most of their higher costs, that the Bank expects more of them to be passed on over the next year, and that "near-term household and business inflation expectations have risen," though longer-term expectations "remain well anchored." Maple set out the survey evidence before the decision in Roughly Half of Surveyed Canadian Firms Plan to Raise Prices.

The Bank traces the pressure to the conflict in the Middle East, which it said "is now in its eighth month and there is no clear path to resolution."

Growth gave the Bank room to act. GDP grew at an annualized 3.3 per cent in the second quarter, and recent indicators point to about 2 per cent in the third, the Bank stated. Unemployment has been around 6½ per cent for several months.

What the October 2026 Monetary Policy Report projects

The Monetary Policy Report, published with the decision, raised the Bank's forecasts for growth and inflation from July. The Bank expects CPI inflation of about 3½ per cent by the end of 2026 and an average of about 3 per cent in 2027, a percentage point above its July projection, before it comes down to 2 per cent in the middle of 2028. It expects growth to slow in the fourth quarter because of new US tariffs, then pick up.

The two inflation measures answer different questions. The annual average covers the whole year, while the fourth-quarter figure shows where inflation stands as the year closes. The Bank's 2027 average sits above its fourth-quarter figure because it expects inflation to start that year high and ease as the months pass. Outside Canada, it revised world growth for 2026 up slightly, to 3.1 per cent.

What it means for variable-rate mortgages and lines of credit

Variable-rate mortgages, home equity lines of credit and many personal lines of credit are priced at a lender's prime rate plus or minus a fixed margin. Each lender sets its own prime, and prime moves with the policy rate. The chartered-bank prime rate the Bank compiles weekly was 4.45 per cent on the day of the decision, before it took effect. National Bank of Canada announced that day it would raise its prime by 25 basis points to 4.70 per cent from October 29.

A worked example gives the size. On a variable-rate mortgage with C$500,000 outstanding, a quarter-point increase adds C$1,250 a year in interest, about C$104 a month, by Maple's calculation, which leaves out the small effect of the balance falling.

On a C$50,000 line of credit, it adds about C$125 a year.

How that reaches a monthly budget depends on the contract. With an adjustable payment, the payment rises. With a fixed payment, the amount stays the same, a larger share goes to interest and less goes to repaying the loan.

What it means for fixed mortgage rates and Government of Canada bond yields

Fixed-rate mortgages follow a different signal. A lender offering a five-year fixed rate prices it from what it costs to borrow for five years in the bond market, where the Government of Canada five-year bond is the usual yardstick. Bond yields move on what markets expect the Bank to do over the whole term, so a decision markets largely expected can leave them close to unchanged on the day.

The bond market's response was small. The five-year benchmark yield was 3.57 per cent the day before the decision, 3.62 per cent on the day and 3.58 per cent the day after, according to the Bank's daily data. The two-year yield ended those three days where it began, at 3.36 per cent. A majority of economists had expected the increase. In a Reuters poll published on October 23, 19 of 34 forecast it.

Most of the rise in long-term yields came earlier. The Monetary Policy Report says long-term sovereign yields "have risen sharply since the start of the year," and attributes Canada's increase mainly to expectations of higher policy rates rather than to a larger term premium, the extra return investors ask to hold longer bonds. "Persistently elevated energy prices have led markets to expect higher policy interest rates," the report says.

Posted mortgage rates moved before the decision too. The five-year conventional mortgage rate posted by chartered banks, also compiled weekly by the Bank, rose to 6.19 per cent in the week of October 7 from 6.09 per cent a week earlier and was unchanged on October 28. A posted rate is an advertised rate, and a signed contract can differ from it.

What it means for savings accounts and GICs

Savers sit on the other side of the same rates. CORRA, the Canadian Overnight Repo Rate Average, which tracks the cost of overnight secured borrowing, was 2.24 per cent on October 28 and 2.49 per cent on October 29, according to the Bank. Institutions price savings accounts and short-term GICs from market rates like these, each on its own schedule.

The posted five-year personal fixed-term deposit rate in the Bank's weekly series was 2.65 per cent on October 28, unchanged since September 9, and the November 4 figure is the first that can reflect the decision.

As a scale check, a C$20,000 savings balance whose rate rose by the full quarter point would earn an extra C$50 in interest a year.

What it means for the Canadian dollar

Other things equal, a higher interest rate in Canada makes Canadian-dollar deposits and bonds pay more than those elsewhere, which can support the currency. The Bank said the dollar "had weakened somewhat on US-dollar strength but has since recovered to around 71 cents," the level it assumed in its July report.

The Bank's daily rate was 1.4036 Canadian dollars per US dollar on the day of the decision, about 71.2 US cents, and about 71.5 cents the next day, up from about 70.1 cents two weeks earlier, according to the Bank's exchange rate data. A firmer dollar lowers the Canadian-dollar cost of goods priced in US dollars, crude oil among them.

What the Bank said about its next rate decisions

The Bank did not commit to a path. The press release stated "there could be a need to increase the policy rate further" and that Governing Council "agreed to proceed carefully." Macklem added that Governing Council would "take future decisions one meeting at a time."

The next announcement is scheduled for December 9, 2026, and the next Monetary Policy Report for January 27, 2027. Before then, Statistics Canada's next consumer price figures will show whether inflation outside gasoline, 2.2 per cent in September, has begun to rise, the spillover the Bank raised rates to head off.

Bank of Canada October 2026 decision: common questions

What is the Bank of Canada's interest rate now? The policy rate is 2.5 per cent, set on October 28, 2026. The Bank Rate is 2.75 per cent and the deposit rate is 2.45 per cent.

Why did the Bank of Canada raise interest rates in October 2026? The Bank said it acted to reduce the risk that high energy prices spread to the prices of other goods and services. CPI inflation was 3.1 per cent in September, according to Statistics Canada.

Will variable-rate mortgage payments go up? Variable-rate loans follow lenders' prime rates, which move with the policy rate; National Bank of Canada set its prime at 4.70 per cent from October 29. Whether the monthly payment rises, or only its interest share, depends on the mortgage contract.

When is the next Bank of Canada rate announcement? December 9, 2026. The next Monetary Policy Report is scheduled for January 27, 2027.