Bank of Canada raises rate for first time since 2023, citing oil-driven inflation risk

The Bank of Canada raised its policy interest rate by 25 basis points Wednesday, its first increase since July 2023.

Governor Tiff Macklem said the bank acted because the war in the Middle East has pushed global oil prices up and they are expected to stay high. "This is hitting Canadians at the gas pump and increasing costs for businesses," Macklem told reporters. He also said the growth outlook had improved modestly because of continued trade actions by the United States. "An increase in the policy rate is needed to reduce the risk that elevated energy prices could spill over and become generalized inflation."

Consumer price inflation has been around 3 per cent since April. The bank expects it to reach about 3.5 per cent by the end of the year. Excluding gasoline, inflation is around 2 per cent, according to the bank. It expects economic growth of 1 per cent by year's end, rising to 2 per cent in 2027 and 2028.

Mortgage expert Clay Jarvis of RateHub.ca said he was not surprised by the move. "It seems the Canadian economy is actually in better shape than a lot of people realize," he said. "So, in terms of economic growth and these fears about rising inflation, a rate hike does make sense."

The change hits variable-rate mortgages, lines of credit and other variable-rate debt first. Fixed mortgage rates are not directly tied to the policy rate and do not move automatically. Mortgage advisers suggest homebuyers weigh their budgets, financial goals and tolerance for rate changes before choosing between fixed and variable.

The bank did not say whether further increases are coming. That will depend on inflation and economic conditions, and the next scheduled rate decision date is not in the material available.