The Bank of Canada raised its benchmark interest rate by 25 basis points to 2.5 per cent on Wednesday, Oct. 28, 2026, to combat persistent inflation. Governor Tiff Macklem stated the move was necessary to prevent elevated energy prices from becoming generalized inflation, as inflation reached 3.1 per cent in September.
Energy prices drive the policy rate hike
The central bank’s decision follows a period of seven consecutive holds and marks the first rate increase since July 2023. Governor Macklem said the hike aims to reduce the risk of price spillover caused by high oil prices, which have been driven by ongoing conflict in the Middle East.
While the energy sector in Alberta is benefiting from these higher prices, the Bank of Canada expects inflation to reach roughly 3.5 per cent by the end of 2026. Global News reports that the bank attributes the September inflation tick-up to high gas prices specifically.
Did you know? The Bank of Canada projects that food inflation will average around 4 per cent in 2027, an increase of about half a percentage point from this year, according to Global News.
Mortgage payments rise for variable-rate borrowers
The quarter-point increase immediately affects Canadians with variable-rate mortgages. Jordan Lavin of NerdWallet Canada told CTV News that a new $500,000 mortgage with a 25-year amortization would see monthly payments rise from $2,483 to $2,549, assuming lenders pass on the full increase.
Lara Stilin, CFO at Your Neighbourhood Credit Union, told Global News that a consumer with $200,000 in a variable-rate mortgage or home equity line of credit will face approximately $500 in additional annual interest costs. Borrowers with fixed-rate mortgages will not see an immediate change to their current rates, though The Globe and Mail notes that the price of new fixed-rate products has already risen due to higher government bond yields.
Housing markets face further slowdown
The rate hike arrives as the residential real estate market remains tepid. The Canadian Real Estate Association has downgraded its home sales forecast three times this year and now predicts 2026 sales will be 5.2 per cent lower than last year, according to The Globe and Mail.
Bank of Canada Deputy Governor Carolyn Rogers acknowledged that borrowing costs and economic uncertainty are weighing on the market, particularly in Ontario and British Columbia. In Calgary, Sukh Pangly told CTV News that while job opportunities exist in the energy sector, employment does not always equate to mortgage affordability.
Pro Tip: Some Calgary builders are currently offering GST rebates and incentives, or allowing legal basement suites to help buyers offset monthly mortgage payments, according to CTV News reporting.
Economists dispute the timing of the increase
Not all analysts agree with the central bank’s move. The Globe and Mail cited analyst David Rosenberg, who described the move as unnecessary and premature.
Analysis suggests the hike was “preventative treatment” or risk management, noting there was no urgency to hike rates at this meeting based on the current state of growth or inflation.
Forecasts for 2027 and beyond
The Bank of Canada’s outlook for economic growth has improved slightly, with the Canadian economy expected to grow two per cent next year. However, Governor Macklem noted that U.S. tariffs and Middle East conflicts continue to create uncertainty. The bank expects inflation to gradually ease toward 2 per cent by mid-2028, per Global News.
| Metric | Current/Recent Figure | Projected Figure |
|---|---|---|
| Benchmark Rate | 2.5% | 2.75% (Servus Credit Union forecast) |
| Inflation Rate | 3.1% (September) | 3.5% (End of 2026) |
| GDP Growth | 3.3% (Q2 2026) | 2.0% (2027 forecast) |
Bank of Canada considers further rate increases
The Bank of Canada has not ruled out further increases. While Governor Macklem stated decisions will be made “one meeting at a time,” Charles St-Arnaud, chief economist at Servus Credit Union, expects back-to-back hikes to end the year at 2.75 per cent. The Globe and Mail reports that another 25 basis point increase is possible at the December announcement.
Common Questions on the Rate Hike
When was the last time the Bank of Canada raised rates before this?
The most recent increase prior to the October 2026 decision occurred in July 2023.
How much will a variable-rate mortgage payment increase?
For a $500,000 mortgage with a 25-year amortization, monthly payments are expected to rise by $66, from $2,483 to $2,549, according to NerdWallet Canada.
What is the projected inflation rate for the end of 2026?
The Bank of Canada expects inflation to reach approximately 3.5 per cent by the end of 2026.
Whether the central bank can curb inflation without causing significant damage to the housing market remains a point of contention among economists, with the December meeting serving as the next indicator of the Governing Council’s trajectory.
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