Decision
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The Bank of Canada raised its policy rate by 25 basis points to 2.50%.
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The bank rate is now 2.75%, and the deposit rate is 2.45%.
Background
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Inflation: CPI is running at around 3% and is expected to rise to about 3.5% by year-end. Average inflation in 2027 is projected at 3%, one percentage point higher than in the July forecast. Prolonged conflict in the Middle East, higher oil prices and the pass-through of higher costs are contributing factors.
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Growth: Growth is forecast at 1% in 2026 and 2% in 2027–28, a slight upward revision from July. However, new US tariffs are expected to slow activity in the fourth quarter.
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Labour market: Unemployment is around 6.5%, indicating that some slack remains in the economy.
Guidance
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The Bank left the door open to further rate increases, while stressing that it would “proceed cautiously.”
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The next policy decision is scheduled for 9 December. The next Monetary Policy Report is due on 27 January 2027.
Canadian Dollar Reaction: No Clear Direction
Supportive factors: the rate hike, the possibility of further increases, higher oil prices and an upward revision to the growth outlook.
Negative factors: the Bank’s cautious stance, which may limit expectations for consecutive hikes; concerns about a tariff-driven slowdown; remaining slack in the economy; and a stronger US dollar.
With the market waiting for a fresh catalyst, the Canadian dollar may remain range-bound.
What to Watch Next
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Canadian CPI: whether core inflation turns higher from around 2%
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Oil prices and developments in the Middle East
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The direction of US tariffs
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US economic data and the Federal Reserve
Scenarios
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Core CPI comes in above expectations: expectations for further rate hikes could strengthen, supporting the Canadian dollar.
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Tariffs weaken the economy: expectations that the rate-hiking cycle has ended could increase, weighing on the Canadian dollar.
