C.D. Howe Council recommends Bank of Canada hold interest rate at 2.25% through October 2027
Independent monetary policy panel of bank economists and financial experts votes to maintain current overnight rate, with gradual increases to 2.75% by next fall if inflation remains elevated.
Sources · C.D. Howe Institute
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The C.D. Howe Institute Monetary Policy Council recommended Wednesday that the Bank of Canada hold its overnight interest rate at 2.25% at its October 28 announcement, with gradual increases to 2.5% by April 2027 and 2.75% by October 2027.
The independent council, chaired by C.D. Howe President Jeremy Kronick and composed of chief economists from Canada's six largest banks, leading academic economists, and financial market experts, serves as a shadow Governing Council assessing the monetary stance needed to achieve the Bank's 2% inflation target.
At the October 28 vote, six of seven members present voted to hold the rate at 2.25%, while one voted for an increase to 2.5%. Opinion diverged more sharply for future decisions: on the December announcement, five members voted to hold, one to hike to 2.5%, and one to go to 2.75%. By April 2027, members were split across four positions—from 2.25% to 3%—with the largest group favouring 2.5%.
The council cited elevated headline inflation around 3%, driven largely by energy prices, against core inflation holding around 2%. Members saw little evidence of broader price pressures, but raised concerns about pass-through risk: energy prices have stayed elevated for an extended period, firms surveyed in the Business Outlook Survey expect to pass on more cost increases than they already have, and the Industrial Product Price Index remains elevated—often an early warning sign of spread to broader consumer prices.
Consumer inflation expectations have also risen to levels last seen during the post-COVID surge, prompting members to worry about credibility: inflation resurged not long after the last peak. Those who voted to hold cited time for the Bank to wait before deciding on a hike.
Uncertainty abounds. The council noted upcoming events that could shift inflation and the output gap: U.S. midterms in early November, the federal budget the same week, and proposed 50% U.S. tariffs on Canadian autos starting January 1, 2027. Financial conditions have also tightened, with yields elevated further out the curve.
By the numbers
What interest rate does the C.D. Howe Council recommend for the Bank of Canada's October 28 announcement?
The C.D. Howe Institute Monetary Policy Council recommends the Bank of Canada hold its overnight interest rate at 2.25%.
How is the council split on the rate decision for October 28?
Six of seven council members present voted to hold the rate at 2.25%, while one member voted for an increase to 2.5%.
What rate path does the council project through 2027?
The council recommends gradual increases to 2.5% by April 2027 and 2.75% by October 2027, contingent on inflation remaining elevated.
What inflation levels are currently constraining the council's decision?
Headline inflation is around 3%, driven largely by energy prices, while core inflation holds around 2%. Consumer inflation expectations have also risen to levels last seen during the post-COVID surge.
