Bank of Canada raises key interest rate to 2.5%, marking first increase in three years — SkimNews
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- Bank of Canada raised its key interest rate to 2.5% on Oct. 28, 2026, its first increase in three years; Carolyn Rogers said the council reached a "very strong consensus" that the balance of risks had shifted toward inflation, and Tiff Macklem said there was now "less scope for monetary accommodation."
- Bank of Canada lifted its inflation forecast to 2.9% for 2026 from 2.5% in July and to 3.1% for 2027 from 2.0% three months ago, while upgrading real GDP growth to 1.0% this year (from 0.7%) and 2.0% next year (from 1.8%).
- Bank of Canada projects that higher energy and import prices — the fallout from the U.S. trade war and the Middle East war — will push up home construction and maintenance costs, while housing is now expected to drag this year's average annual growth by 0.1 percentage points, down from 0.2 points in the previous report.
- Carolyn Rogers called the housing outlook "pretty subdued" at about 1% over the next two years, pointing to a sharper adjustment in B.C. and Ontario, particularly Vancouver and Toronto, and said borrowing rates already weigh on the market with the increase adding pressure at the margin.
- Marc Ercolao of TD said the hike buys the Bank a few months to see whether higher energy and input costs are filtering into consumer prices, and predicts one more 25-basis-point increase in Q1-2027 to 2.75% — roughly the middle of the Bank's neutral range — with the bar for subsequent hikes rising significantly.
- David Rosenberg called the decision "totally unnecessary and premature," arguing inflation is running hot only because of energy costs beyond the Bank's control while core measures sit at, near or below 2% and employment is down more than 40,000 this year; he calls it an "insurance hike," expects the Bank to be one-and-done or two-and-through, and sees value in short-term Canadian bonds.
- Tiff Macklem said businesses are adapting to U.S. tariffs by shipping more to non-U.S. destinations and investing more in AI, judged the direct macro effect of the latest U.S. trade actions not large because the affected exports are a narrow base, and said fiscal measures, Major Projects Office projects starting next year and the "mega deduction" have strengthened the investment outlook.
Why it matters: Homebuilders and homebuyers absorb the tightening: Rogers pegs housing growth at about 1% over the next two years, says borrowing costs already weigh on Vancouver and Toronto, and notes the hike adds pressure at the margin. The BoC also upgraded this year's real GDP growth forecast to 1.0% while marking inflation up to 2.9%.
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