The Bank of Canada has raised its key interest rate by 25 basis points to 2.5 percent, marking its first increase since July 2023 as concerns grow over rising inflation.
In its October Monetary Policy Report, the central bank warned that higher energy prices and uncertainty surrounding Canada-US trade relations could increase the cost of living.
Canada’s inflation rate currently stands at 3.1 percent.
Bank of Canada Governor Tiff Macklem said the inflation outlook had “deteriorated” since July, largely because of rising global oil prices linked to the ongoing war in the Middle East.
“With the outlook for inflation substantially higher and the economy showing resilience, an increase in the policy rate is needed to reduce the risk that elevated energy prices could spill over and become generalized inflation,” Macklem said on Wednesday.
The bank also warned that businesses could pass rising costs on to consumers, with 60 percent of surveyed businesses expecting to increase prices over the next year.
Despite inflation concerns, Canada’s economy grew by 3.3 percent in the second quarter, supported by consumer spending and business investment.
However, growth is expected to slow as US tariffs continue to affect Canadian industries.
Macklem also warned that further interest rate increases remain possible: “There could be a need to raise the policy rate further, but given the uncertainties we will proceed carefully.”
