The Bank of Canada raised its key interest rate for the first time since July 2023 Wednesday to tamp down inflation, a hike Ontario Premier Doug Ford panned as “a massive mistake.”
“Higher rates won’t get oil moving through the Strait of Hormuz or lower tariffs on Canadian businesses. They will only make life more expensive for Canadian families and workers, punishing them for something they can’t control,” Ford wrote in a tweet before the announcement was made this morning.
The bank increased its key policy rate by 25 basis points to 2.5 per cent, a move that was widely expected in the face of high oil prices and a rising interest rate, both brought on, in part, by the war in Iran and U.S. President Donald Trump’s trade war.
Its inflation forecast for 2027 also rose to 3.1 per cent from the two per cent it had predicted in July. At the same time, the Canadian economy is expected to grow by one per cent in 2026 and two per cent in 2027, a “somewhat” stronger overall growth projection than what was forecast in the summer, the bank said.
As such, the bank said it may need to raise its interest rate again in the future.
“Against this backdrop, Governing Council decided to increase the policy rate to reduce the risk that continuing high energy prices spread broadly to the prices of other goods and services. There could be a need to increase the policy rate further, but given uncertainties, Governing Council agreed to proceed carefully,” officials said in a news release.
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Ontario Finance Minister Peter Bethlenfalvy, who is set to deliver the province’s fall economic statement on Thursday, had a more modest reaction to the expected interest rate jump, but said he understands Ford’s perspective.
“Who wouldn’t advocate for lower interest rates at a time when people are feeling the impacts of those higher interest rates? But at the end of the day, the Bank of Canada is an independent organization that has all the facts at their disposal, and keeping inflation in check is really important,” he told CTV News at an unrelated news conference before the rate hike was made official.
In simple terms, the Bank of Canada explains that, if the economy is growing too fast, it could lead to rising inflation. Raising the rate results in people and businesses paying higher interest on loans and mortgages, and discourages them from borrowing, reduces their spending and puts brakes on inflation.
“With higher rates, people tend to save more and spend less, slowing down the economy,” according to a post on their website.
Prior to Wednesday’s increase, the Bank of Canada hadn’t touched the interest rate since Oct. 29, 2025, when they dropped it by 25 basis points.
