ContextOpening remarks at the press conference releasing the Monetary Policy Report, with the Senior Deputy Governor; the Bank of Canada protects the value of money, and its main challenge is energy-driven inflation.
Why it mattersIt accompanies the Bank of Canada's first rate increase since July 2023 and explains how energy prices and tariffs shaped that decision.
- Higher and persistent energy prices raise the risk of broader inflation.
- New United States tariffs create uncertainty and are expected to slow growth in the fourth quarter.
- Near-term inflation expectations have climbed even though longer-term ones remain anchored.
- Raise the policy rate by 25 basis points to 2.5% to limit spillover from energy costs.
- Move carefully, since further increases may be needed but the outlook is uncertain.
- Watch core inflation and the pass-through of energy prices to decide the next steps.
Read the speech summary
1. The decision
The Bank of Canada lifted its policy rate by a quarter point to 2.5%, its first increase since mid-2023. Two things changed since July: the inflation outlook worsened as the Middle East war keeps oil prices high, and the growth outlook improved slightly despite continuing US trade measures.
2. Economy and projections
Output expanded by 3.3% during the spring quarter, helped by consumers, energy and equipment investment, and resilient exports. Growth should dip at year end on new US tariffs, then recover to roughly 2% in 2027 and 2028 after 1% this year. Unemployment sits near 6.5% with some slack. Inflation hovers around 3%, may reach 3.5% by December, and returns near the 2% goal around mid-2028. Short-term expectations have risen; longer-term ones are anchored.
3. Why raise rather than hold
Holding was defended because inflation excluding gasoline is 2.2% and core measures are near 2%. Raising won because fuel costs stay high, firms are expected to pass on more costs, and recovery removes the cushion that would offset them. Council will decide meeting by meeting and may tighten again, carefully.