OTTAWA, Oct. 28 (Xinhua) -- The Bank of Canada on Wednesday raised its policy interest rate by 25 basis points to 2.5 percent, marking its first rate hike since July 2023.
Speaking at a press conference, Bank of Canada Governor Tiff Macklem said that, with the inflation outlook substantially higher and the economy showing resilience, an increase in the policy rate is needed to reduce the risk that elevated energy prices could spill over and become generalized inflation.
"There could be a need to raise the policy rate further," he added.
According to the bank's Monetary Policy Report released on Wednesday, a broad set of indicators continues to point to some excess supply in the Canadian economy. Inflation has been higher and more persistent than expected.
The central bank projected inflation to average 3 percent in 2027, one percentage point higher than its previous forecast, before easing to its 2-percent target in the middle of 2028.
Owing to new U.S. tariffs, Canada's economic growth is expected to slow in the fourth quarter of 2026 before recovering in 2027. GDP growth is forecast to expand by 1 percent in 2026 and 2 percent in both 2027 and 2028, slightly higher than previously anticipated, said the central bank.
The central bank cautioned that its forecast is still subject to considerable uncertainty, particularly regarding Canada-U.S. trade relations.
