It hasn't been raised in 3 years: Bank of Canada hikes policy rate amid inflation risk
The Canadian central bank raised its policy rate to 2.5% amid an inflationary backdrop. It’s the first increase since 2023, as fuel price rises driven by the conflict in the Middle East continue.
It has been a little over three years since the central bank of Canada made the decision to raise its key rate. This is now done on Wednesday, by 0.25 percentage points, to reach 2.5%. The institution justified its decision with the aim of “reducing the risk that the persistence of high energy prices spreads in a generalized way to the prices of other goods and services”.
Since the start of the conflict in the Middle East, fuel prices have increased significantly in the country. Over one year, they jumped 27.8%. “We are now in the eighth month of this war in the Middle East.
Energy prices have been high for eight months and it seems that they will remain so,” declared the Governor of the Bank of Canada, Tiff Macklem, during a press conference on Wednesday. An increase which contributes to accelerating inflation in the country. In September it was of the order of 3.1% and could reach “around 3.5%” by the end of the year according to the central bank's forecasts.
A trade conflict with the United States that never ends In parallel with tensions in the Middle East, Canada is still entangled in a trade conflict started by Donald Trump. Tensions between the two countries reignited in August, when the Carney government withdrew from formal trade negotiations, saying the Americans had made new demands at the last minute. Donald Trump then decided to impose customs duties on billions of dollars of Canadian products, and Canadians responded by introducing retaliatory customs duties on American products.
“With the new US customs duties, growth is expected to slow in the fourth quarter of 2026, before resuming in 2027,” the central bank cautiously announced. The institution does not rule out further increasing its rate in the coming months and must also announce its next decision on December 9. In the meantime, Andrew Grantham, economist at CIBC bank, believes “that the Bank will maintain its rate in December before increasing it once again in January”.
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- BFM Business28 Oct, 18:01
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