Bank of Canada raises key rate to 2.5%

The Bank of Canada raised its key policy rate by 25 basis points to 2.5% on Wednesday, its first increase since July 2023, as it warned that energy costs could keep inflation elevated and spread into a broader range of prices. The increase followed a year in which the bank held its rate at 2.25%. In its October outlook, the central bank raised its forecast for inflation in 2027 to 3.1%, from the 2% it projected in July. It expects inflation to remain above 3% through the rest of 2026 and much of 2027, before easing to its 2% target by mid-2028. Governor Tiff Macklem said higher energy prices risk becoming more persistent and affecting prices beyond energy. He said the rate increase was intended to reduce the risk that those costs would spill over into broader inflation. Macklem also said the bank could need to raise rates further, while emphasizing that it would proceed carefully amid uncertainty. The bank’s projections put economic growth at 1% in 2026, 0.3 percentage points above its July forecast, and 2% in both 2027 and 2028. The October outlook also described uncertainty around the conflict in the Middle East and U.S. trade policy. Macklem said new U.S. tariffs would slow...