Bank of Canada raises key rate to 2.50%
TLT•The Bank of Canada raised its target overnight rate by 25 basis points to 2.5%, citing persistent inflation and stronger-than-expected growth. It said CPI inflation is expected to average 3% in 2027 and return to 2% in mid-2028.
1. Rate increase
The Bank of Canada raised its target for the overnight rate by 25 basis points to 2.5%. The Bank Rate is 2.75% and the deposit rate is 2.45%. The Bank said further increases may be needed, but Governing Council agreed to proceed carefully given uncertainties.
2. Growth outlook
Canadian GDP grew 3.3% in the second quarter, and recent indicators point to growth of about 2% in the third quarter. The Bank expects the economy to grow 1% in 2026 and 2% in both 2027 and 2028, while noting considerable uncertainty, particularly around Canada-US trade relations.
3. Inflation outlook
CPI inflation has been around 3% since April and is expected to reach about 3.5% by year-end. The Bank expects inflation to average 3% in 2027, one percentage point above its July projection, then fall to 2% in mid-2028; it cited high energy prices and rising cost pass-through as risks to inflation persistence.
