TORONTO
The Bank of Canada raised its key interest rate for the first time since July 2023 Wednesday, a hike Ontario Premier Doug Ford panned as “a massive mistake.”
“Higher rates won’t get oil moving through the Strait of Hormuz or lower tariffs on Canadian businesses,” Ford wrote in a tweet before the announcement. “They will only make life more expensive for Canadian families and workers, punishing them for something they can’t control.”
The bank increased its key policy rate by 25 basis points to 2.5 per cent.
Officials said the move was aimed at reducing the risk that high energy prices spread broadly to other goods and services.
“Against this backdrop, Governing Council decided to increase the policy rate to reduce the risk that continuing high energy prices spread broadly to the prices of other goods and services,” the bank said in a news release. “There could be a need to increase the policy rate further, but given uncertainties, Governing Council agreed to proceed carefully.”
The bank said its inflation forecast for 2027 rose to 3.1 per cent from the two per cent it had predicted in July.
At the same time, the Canadian economy is expected to grow by one per cent in 2026 and two per cent in 2027, a “somewhat” stronger overall growth projection than what was forecast in the summer.
The rate hike was widely expected in the face of high oil prices and rising interest rates, both brought on, in part, by the war in Iran and U.S. President Donald Trump’s trade war.
Ontario Finance Minister Peter Bethlenfalvy, who is set to deliver the province’s fall economic statement on Thursday, had a more modest reaction.
“Who wouldn’t advocate for lower interest rates at a time when people are feeling the impacts of those higher interest rates?” Bethlenfalvy told CTV News before the rate hike was made official. “But at the end of the day, the Bank of Canada is an independent organization that has all the facts at their disposal, and keeping inflation in check is really important.”
He said he understands Ford’s perspective.
The Bank of Canada explains that raising the rate results in people and businesses paying higher interest on loans and mortgages, discourages borrowing, reduces spending and puts brakes on inflation.
“With higher rates, people tend to save more and spend less, slowing down the economy,” according to a post on its website.
Prior to Wednesday’s increase, the Bank of Canada hadn’t touched the interest rate since Oct. 29, 2025, when it dropped the rate by 25 basis points.
Bethlenfalvy said last week the fall economic statement will outline the next phase of the province's plan amid a slower economy and U.S. tariffs.
This story was written by the e2gold.ca newsroom from reporting by BNN Bloomberg and CTV News. Quotes are checked word for word against that reporting.