The Bank of Canada raised its policy interest rate by 25 basis points to 2.5% on Wednesday, citing persistent inflation and resilient global economic activity. The central bank noted that higher energy prices and strong consumer spending in the U.S. have contributed to global growth, which is now projected at 3.1% for 2026. The Canadian economy grew 3.3% in the second quarter, with consumer spending and business investment driving the expansion.
Inflation in Canada has remained around 3% since April, with expectations for it to rise to 3.5% by year-end. The Bank of Canada attributed this to elevated oil prices and increasing cost pressures in production and transportation. While near-term inflation expectations have risen, longer-term expectations remain stable.
The central bank acknowledged uncertainties, particularly around Canada-U.S. trade relations and the ongoing conflict in the Middle East. Despite these risks, the Governing Council decided to raise the policy rate to curb inflationary pressures, leaving the door open for further increases if necessary.
The Canadian dollar has stabilized at around 71 cents U.S., and the economy is expected to grow 1% in 2026, with a rebound to 2% in 2027 and 2028. The Bank of Canada emphasized its commitment to maintaining price stability amid these economic challenges.