Bank of Canada raises rate by 25 basis points, first hike since July 2023

The Bank of Canada raised its benchmark lending rate by 25 basis points to 2.5 per cent on Wednesday, marking its first increase since July 2023.

Bank officials said rising global oil prices and higher energy costs risk fuelling broader inflation. Consumer Price Index inflation has been around three per cent since April and is expected to reach about 3.5 per cent by year-end.

“With the war in the Middle East resisting, global oil prices have increased and are expected to be higher for longer, this is hitting Canadians at the gas pump and increasing costs for businesses.”

Economists described the decision as tough and forward-looking, and said at least one more rate hike is likely. The bank forecasts headline inflation of 3.4 per cent in the fourth quarter and 2.6 per cent in the same period next year.

Governor Tiff Macklem said the growth outlook for Canada has improved modestly due to continued trade actions by the United States. He added that an increase in the policy rate is needed to reduce the risk that elevated energy prices could spill over and become generalized inflation.

Canadians with variable-rate mortgages and other variable-rate debt could face higher borrowing costs depending on their agreements. Fixed mortgage rates are not directly tied to the policy rate and are not automatically affected.

Mortgage experts advise homebuyers to weigh budgets, financial goals and tolerance for potential rate changes before choosing fixed or variable mortgages. Further rate increases remain uncertain as inflation and economic conditions continue to evolve.