Bank of Canada raises benchmark rate as inflation pressures persist

The Bank of Canada lifted its benchmark interest rate on Wednesday, marking the first hike in more than three years as it seeks to pre-empt further price pressures. Inflation rose to 3.1 % in September, driven largely by higher gasoline costs, and the central bank projects annual inflation will reach 3.5 % by year-end before easing toward 2 % by mid-2028.

Lara Stilin, chief financial officer at Your Neighbourhood Credit Union, said a homeowner with a $200,000 variable-rate mortgage or home-equity line of credit could see roughly $500 in additional annual interest costs. Kristy Rachkowski, chief member experience officer at the same credit union, warned that households already cutting back on dining out and delaying major purchases may now have to choose which bills to pay each month.

Bank of Canada Governor Tiff Macklem described inflation as “more persistent” and indicated that the decision to raise rates was made after weighing that risk. He added that future policy moves will be considered “one meeting at a time,” though further hikes remain possible.

Economist Charles St-Arnaud of Servus Credit Union expects the central bank could implement back-to-back increases, potentially ending the year with a policy rate of 2.75 %. He noted that a weakening economy or lower-than-expected inflation would be needed to halt further tightening.

Stilin advised Canadians to review their budgets, especially those feeling the impact of rising fuel and grocery prices, and to consider taking action now to manage the added financial strain.