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Macro EconomyMedium•2 November 2026•
2 min read

Bank of Canada raises interest rate by 25 basis points to 2.5% amid inflation pressures

Key Facts

1The Bank of Canada raised its interest rate by 25 basis points to 2.5% on October 28, 2026.
2Gross domestic product grew 3.3% in the second quarter, while indicators pointed to growth of about 2% in the third quarter of 2026.
3The Bank of Canada forecast economic growth of 1% in 2026 and 2% in each of 2027 and 2028.
4The manufacturing index registered 52.9 points in May 2026, compared with 53.3 points in April.

The Bank of Canada raised its overnight target rate by 25 basis points to 2.5% on October 28, 2026, according to the bank’s statement. The Governing Council said the decision aims to limit the risk that higher energy prices have broader effects. The bank said inflation had risen and remained at higher levels than reported in its July report. It added that high energy prices could pass through to the prices of other goods and services. The decision comes as the bank expects Canadian economic growth to slow in the fourth quarter of 2026.

Bank data showed gross domestic product grew 3.3% in the second quarter of 2026. Recent indicators, in the bank’s assessment, pointed to growth of about 2% in the third quarter. The bank expects activity to slow in the final quarter amid new U.S. tariffs, before rebounding in 2027, supported by investment, exports and fiscal measures. For the year, it estimates economic growth of 1% in 2026, then 2% in each of 2027 and 2028. The bank noted that uncertainty persists, particularly over trade relations between Canada and the United States.

In manufacturing, the S&P Global Canada Purchasing Managers’ Index registered 52.9 points in May 2026, compared with 53.3 points in April. Despite the decline, sector growth in May remained strong and above its historical average, according to S&P Global. The index is based on surveys of a panel of about 400 manufacturing companies. A reading above 50 points indicates overall growth from the previous month, while a reading below that threshold indicates a contraction. An S&P Global official said current growth "may be somewhat misleading and fraught with downside risks."

The Bank of Canada set December 9, 2026, as the date for its next announcement on the overnight target rate. The next Monetary Policy Report is scheduled for January 27, 2027. These dates place the latest decision within a monetary policy path that will assess developments in inflation and economic activity. The bank’s assessment also includes its outlook for economic growth in the coming years. The bank expects growth to be 1% in 2026 and 2% in each of 2027 and 2028.