The Bank of Canada has held its key interest rate unchanged for about a year, but some economists expect rates to begin increasing again as early as next week — which would be the first hike in more than three years.
This comes after a recent warning from the central bank that inflation is expected to keep rising as a ripple effect of the Iran war and other factors.
Last month, the U.S. Federal Reserve hiked its key policy rate for the first time in three years, and after U.S. inflation in August topped 3.4 per cent.
Tamping down red-hot inflation is key to making life more affordable for Canadians amid the heightened cost of living — along with increasing wages and salaries — but in order to achieve this, it may mean some will end up paying more to borrow money.
Central banks usually increase their benchmark borrowing rate to help cool down inflation, which can raise costs for Canadians and businesses with products like variable rate mortgages, and some loans for cars, tuition and business.
The Bank of Canada has a mandate to “promote the economic and financial welfare of Canada,” and this includes ensuring prices for goods and services remain relatively stable, while also keeping borrowing rates low enough to allow the economy to expand.
Its target range for inflation is between one and three per cent, with a target of two per cent, and its benchmark interest rate has been 2.25 per cent since October 2025.
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Governor Tiff Macklem at the Bank of Canada spoke to reporters on Saturday in a press conference from the sidelines of the International Monetary Fund meetings in Bangkok, and said he expects the outlook for inflation will be “quite a bit higher” than it was in the central bank’s last forecast in July. That projection had inflation cooling to around 2.5 per cent in the second half of this year.
What role do higher oil prices play?
Consumer price inflation in September was measured at 3.1 per cent, which was mainly because of higher gas prices, and the consumer price index has been at or above three per cent for three straight months.
Although inflation has been hovering on the higher end of the central bank’s target range, it hasn’t necessarily spiked out of control. Elevated gas prices amid the Iran war have been mostly isolated, which has somewhat clouded the underlying price growth, known as core inflation, which has remained closer to two per cent for several months.
But over the long term, higher oil and gas prices can lead to higher prices for just about everything else, including food.
Macklem has said on several occasions that rising oil and gas prices are a risk to inflation, but there has been little evidence of broader spillover into consumer prices. This means that the recent higher inflation readings are being taken with a grain of salt.
However, Macklem warned that the longer oil and gas prices remain elevated, the more likely it is that it will lead to inflation becoming entrenched and rates will need to rise.
“If energy prices go higher, and particularly if they stay higher for longer, there could well be a need to increase the policy rate to get inflation back to two per cent,” Macklem said in August.
Speaking in Bangkok over the weekend, Macklem said, “The question we’re going to be asking ourselves is, is inflation likely to come back down towards our target on its own, or are we going to have to raise interest rates to influence the path?”
It was those comments that led some economists to change their own outlooks for interest rates in Canada, expecting the Bank of Canada to raise rates next week to get ahead of rising inflation.
“That is really what flipped the script for us a little bit and put us in the camp of expecting a Bank of Canada rate hike in October,” said Randall Bartlett, deputy chief economist at Desjardins.
“The Bank of Canada is really trying to get ahead of higher inflation, higher underlying inflation, which we haven’t materially seen yet, but to prevent it from happening.”
After the pandemic, when inflation peaked at over eight per cent, some economists felt the central bank waited too long to raise rates to get inflation under control. At the time, the key policy rate was raised relatively quickly and aggressively from emergency lows of 0.25 per cent in March 2022 to five per cent by July 2023.
“Policy was left far too low for far too long and the consequence of that was it had to raise rates aggressively over a really short period of time to get inflation back under control,” says senior economist Robert Kavcic at BMO Capital Markets.
“And so now they’re kind of sitting here perhaps looking at that mistake and saying, well, let’s not repeat that again.”
Kavcic added: “we’re looking for a very cautious set of rate hikes.”
Holt says the central bank may take a different approach this time by acting pre-emptively rather than responsively.
“Governor Macklem sounds like he’s fading backward looking data in favour of a higher forward-looking inflation forecast and higher inflation risk. The BoC looks at trends, not spot data anyway,” said Holt.
“BoC staffers have a serial addiction to missing inflection points on inflation risk and routinely underestimating it.”
All three economists expect the Bank of Canada to hike by 0.25 per cent next week, and with Bartlett forecasting another 0.25 per cent hike in January.
– with a file from The Canadian Press
At this point, I’m sure our Canadian leaders are working for other countries. You can’t be this bad at leading a country and, despite trying your best, still lead a first world country into the third world. All liberals need to be shot and p***ed on for what they’ve done to this country; the party and the voters.
Elbow up losers
Ben is an AI chatbot, don’t be fooled people
Carney making housing more affordable every day due to his mismanagement of the economy and blaming all on Trump. Pretty soon it will be Harper’s fault. Thank you ElBozos!
@Victor. Respectfully, just to clarify, fixed mortgage rates are tied to Government of Canada bond yields, not the Bank of Canada rate. Variable rates, short term loans, lines of credit, etc. are determined by the Bank of Canada rate (prime plus a spread). I’m clarifying because most think the BoC determines fixed mortgage rates. It does not.
@ Haha
Good one !
Ben is not AI generated in my opinion
AI is known to “ hallucinate” but not to that extent
@316, right across the board it will replace EVERYONE, DUMDUM! Was your mom and dad crack addicts?
Sure just make it more expensive to pay our 500k + mortgages for shitholes, that’ll fix gas price. I will ask for a salary increase to compensate and hey, my companie will charge more to its customers. The only people pocketing all the cash will be banks and the government. The government should just stop giving our money away to other countries and find real solutions like investing in our own production.
So the weasel Tiff Macklem is going to raise the rates again for the second time! Maybe he should be taking money from spendaholic Carney! There are people still struggling with debt due to covid’s loss of jobs and shutdowns as well as Canada’s poor economy, food, rents, gas, pharmaceuticals, etc. etc. etc. Canada is at the bottom of the G7 already thanks to Trudeau’s and Carney’s false promises of bringing our once long ago economy back up to par. If only after voting in someone we trusted, we should be able to vote to fire them for Lying, Scamming, and Fraudulence!!
@Haha 304 Pm. Poor thing-your brain hurts? You are the exactly the kind of uneducated person who can’t comprehend that AI is being built to replace.
Ben if you’re what the AI future looks like I’m gonna live on raft in middle of the ocean
Trying to “ tamp down” inflation while the federal government continues to spend money like there’s no tomorrow is akin to fixing a leak in your home plumbing with all taps running
BTW was that not an election promise to curtail spending ? Another broken promise , what’s new?
Extra Extra Read all bout it, loaf of bread costs $100
The organ grinders green monkey must be on his way over to ask, scratch that, to beg for another billion.
Ben how much do you get paid per post?
Yup, this handling of the economy by our Elbozo King Karney sure will make things easier for the youth of today looking to purchase a home. Canada is cooked with our LIB fiasco!
The war between the US and Iran is raising inflationary pressures. Government of Canada bond yields are currently above the Bank of Canada rate, which means investors expect higher interest rates and ongoing inflationary pressures. Rising bond bond yields and inflation expectations create implicit pressure for the Bank to raise rates. What is interesting is that higher bond yields are already tightening financial conditions even without a policy rate increase. So it really is a tossup whether the bank raises rates as the above factors and things like economic growth and employment will be taken into account.
France and Italy and Germany are in debt crisis and riots have started to erupt in the EU countries but Carney still wants Canada to become an “Associate member” of that economic diSastrous group of countries. Or is it just another way for Carney to bring down Canada and our economy.
France and Italy and Germany are in debt crisis and riots have started to erupt in the EU countries but Carney still wants Canada to become an “Associate member” of that economic di
So a day after the parliamentary budget officer, a Carney appointee, came out with a report that said that Carney’s deficit spending is predicted to create debt that will cost taxpayers $80 billion dollars to service by 2030, up from $57 billion this year. Inflation will continue to increase and there is no relief in sight as long as the Liberals continue with their disastrous fiscal policies. All that from a Carney appointee. Is it any wonder that the bank of Canada is considering raising interest rates. YIKES!!!
They are going to have to raise the rates they cannot keep making excuses and ignoring the fact that our economy is in the dumpster
Yeah, let’s blame the affordability crisis on the ME conflict. I’m sure it has nothing to do with the ever escalating Liberal carbon, plastic & packaging taxes. Not to mention that annual tax returns have also vanished.
Can’t wait for Ben’s excuse for this one !!!