Bank of Canada weighs further rate hikes amid ongoing uncertainties

The Bank of Canada’s governing council said it may need to raise its policy interest rate again, but it will move forward carefully, according to a summary of its recent meeting. The council highlighted considerable uncertainty surrounding the war in the Middle East, Canada-U.S. trade relations, global financial conditions and the pace at which price pressures could pass through the economy.

"Members underlined that their outlook was still subject to considerable uncertainty about the war in the Middle East, Canada-U.S. trade relations, global financial conditions, the speed and extent of pass-through and how businesses and households would react to these developments," the summary said.

The bank had lifted its key policy rate by a quarter of a percentage point to 2.5 per cent the previous month to curb the risk that high oil prices could translate into persistent inflation. While it intends to look through the immediate impact of the war on inflation, officials warned they would not allow higher energy costs to become broadly entrenched.

"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 deliberations noted.

Council members agreed that monetary policy cannot lower global energy prices but can help prevent those costs from feeding generalized inflation. The bank also raised its outlook for the annual inflation rate to 3.5 per cent by year-end and expects it to stay above three per cent for much of 2027. Surveys suggest businesses anticipate raising some prices over the next year, even though higher costs have so far been only modestly passed on to consumers. The next scheduled rate decision is set for Dec. 9.