The Bank of Canada is taking a cautious approach to further interest rate hikes, according to the minutes from its latest policy meeting. While policymakers agree that additional rate increases are necessary to curb inflation, they are proceeding carefully due to uncertainties surrounding U.S. tariffs and the ongoing Iran war.
The central bank raised its overnight interest rate by 25 basis points to 2.50% in October, marking its first rate hike since 2023. Bank of Canada Governor Tiff Macklem noted that the inflation outlook had been revised upward, with forecasts now predicting inflation to exceed 3.5% by the end of 2026 and remain above 3% throughout 2027.
The minutes highlight growing concerns about rising energy prices driven by the Iran war, which have contributed to higher overall inflation in Canada. Officials worry that sustained high energy prices could lead to broader and more persistent inflation. The minutes state, 'With the war in its eighth month and no resolution on the horizon, members exchanged views on whether a higher policy interest rate was needed to mitigate the risk that higher energy costs would spread to other goods and services.'
The Bank of Canada’s next interest rate decision is scheduled for December 9, its final meeting of the year.