The Bank of Canada may not be finished raising interest rates as persistent inflation keeps further tightening on the table ahead of its final policy decision of the year.
Bank of Canada Governor Tiff Macklem told lawmakers on November 3 that inflation is expected to reach 3.5% by year-end, remaining at or above 3% through much of 2027.
His remarks followed the Bank’s October 28 decision to raise its policy rate by 25 basis points to 2.50%, its first increase since July 2023.
Inflation May Stay Higher for Longer
Canada’s CPI inflation has hovered around 3% since April, driven partly by higher oil prices linked to the ongoing conflict in the Middle East.
Macklem warned that businesses may increasingly pass higher production and transportation costs on to consumers, keeping inflation elevated longer than expected.
The Bank projects inflation will return close to its 2% target by mid-2028.
Canada’s Economy Holds Up
Canada’s economy has shown more resilience than anticipated, with GDP growing 3.3% in the second quarter and recent indicators pointing to approximately 2% growth in the third quarter.
Unemployment has remained near 6.5%, while consumer spending, exports and business investment have supported economic activity.
The Bank forecasts GDP growth of 1% in 2026 and around 2% annually in 2027 and 2028. However, it expects growth to slow in the fourth quarter as new US tariffs weigh on economic activity.
Another Hike or a Year-End Pause?
Macklem acknowledged that further interest rate increases may be necessary but emphasized that policymakers would proceed cautiously, with decisions made one meeting at a time.
That leaves uncertainty ahead of the December 9 interest rate decision.
Another 25-basis-point hike would lift the policy rate to 2.75%, while a hold would maintain the current 2.50% rate.
With inflation expected to approach 3.5% and the economy holding up better than anticipated, incoming economic data will help shape December’s rate expectations.
Will persistent inflation lead to another hike before year-end, or will the Bank hold at 2.50% and reassess in 2027?
Track the latest interest rate probabilities at Bank of Canada Odds.
Source: Bank of Canada — Opening Statement, November 3, 2026
