Key Takeaways
- The Bank of Canada raised its policy rate 25 basis points to 2.50% despite weak economic growth.
- Inflation is projected to stay above the Bank's 2% target until near mid-2028.
- Higher rates can increase variable borrowing costs but may improve deposit and GIC returns.
Canada's Economy Hit the Brakes. The Bank of Canada Raised Rates Anyway.
Imagine your car struggling uphill. Instead of giving it more gas, someone presses the brake.
That's the uncomfortable picture facing Canada's economy.
On October 28, 2026, the Bank of Canada raised its policy rate by 25 basis points to 2.50%. Days later, Statistics Canada reported zero growth in July and August, with an advance estimate showing a 0.1% decline in September.
So why make borrowing more expensive when the economy is barely moving?
Because weak growth isn't the only problem. Inflation is still a threat.
The Inflation Problem Won't Disappear Overnight
The Bank of Canada's inflation target is 2%. But its October Monetary Policy Report paints a longer road back.
Inflation is projected to reach about 3.5% by the end of 2026, remain around 3% through most of 2027, and return near 2% only by mid-2028.
Meanwhile, economic growth is projected at just 1.0% in 2026.
The Bank faces an ugly choice: support growth now or risk letting inflation stay elevated.
Tariffs Make the Decision Harder
Tariffs can raise the cost of imported goods even when shoppers are spending less.
That creates a nasty combination: businesses face higher costs while customers have less room to spend.
Cutting interest rates could support the economy but also make persistent inflation harder to control. Raising them helps restrain inflation but risks weakening growth further.
On October 28, the Bank chose the second path.
What Changes for Your Wallet?
The policy rate now stands at 2.50%, the Bank Rate at 2.75%, and the deposit rate at 2.45%.
Variable-rate mortgages and floating-rate loans can become more expensive. Fixed mortgage renewals depend on lender pricing and bond yields.
Savers, meanwhile, may benefit from stronger deposit and GIC returns.
The Twikup Take
Canada's economy needs an accelerator. Inflation needs a brake. The Bank of Canada has one interest-rate lever, and both problems are pulling it in opposite directions.
The Bank chose to fight inflation first. The question now is how much more weakness Canada's economy can absorb.
Image: AI-generated illustration.