Bank of Canada raises policy rate 25 basis points to 2.5% as oil feeds inflation

A 25 basis point increase

The Bank of Canada raised its target for the overnight rate by 25 basis points to 2.5% on October 28. The Bank Rate now stands at 2.75% and the deposit rate at 2.45%.

Oil is driving the inflation picture

CPI inflation has run around 3% since April, and the Bank expects it to reach about 3.5% by the end of the year. Strip out gasoline and the rate was 2.2% in September, with core measures close to 2%.

The Bank sees cost pressures building. Fuel is raising production and transport costs, imported industrial and electronics inputs are dearer, and Bank surveys suggest companies will pass more of those costs to customers over the next year. Short-term expectations among households and businesses have moved up, while longer-term ones remain anchored. CPI inflation is projected to average 3% in 2027.

Growth has held up, for now

GDP grew 3.3% in the second quarter, and recent indicators point to about 2% in the third, a stronger run than the July Report expected. New US tariffs are forecast to slow activity in the fourth quarter of 2026 before a pickup in 2027.

The Bank now sees the economy growing 1% in 2026 and 2% in both 2027 and 2028, a somewhat stronger overall path than in July. Unemployment has sat around 6.5% for several months, and a broad set of indicators still points to some excess supply.

What Canadian rate and currency traders watch

The Bank put the Canadian dollar around 71 cents, the same level assumed in July. Traders of Canadian dollar and short-term rate futures usually compare wording like this against the next CPI and jobs reports.

Two inputs stand out in this statement: energy prices, which the Bank expects to stay high for longer, and Canada-US trade relations, which it names as a source of considerable uncertainty.