The Bank of Canada raised its key interest rate by a quarter point to 2.5% on Wednesday, citing stronger economic growth and persistent inflation. The central bank now expects growth of 1% in 2026, up from its previous forecast of 0.7%. Governor Tiff Macklem highlighted that inflation appears more stubborn due to sustained high energy prices and ongoing Middle East conflict.
The decision was driven by a combination of factors, including a higher inflation outlook and signs that companies plan to pass on added costs through price increases. The bank's business survey indicates a growing number of firms intend to raise prices over the next year.
While inflation was the primary driver, the Bank of Canada also expressed confidence in the domestic economy's resilience and businesses' ability to navigate trade uncertainties. This optimism contributed to the decision to hike rates.