Bank of Canada lifts interest rates to 2.5%, as expected

(Sharecast News) - The Bank of Canada lifted interest rates on Wednesday by 25 basis points to 2.5%, as widely expected. This marked the first hike in three years.

Governor Tiff Macklem said: "With the outlook for inflation substantially higher and the economy showing resilience, an increase in the policy rate is needed to reduce the risk that elevated energy prices could spill over and become generalised inflation.

"We are mindful that uncertainty is still elevated. Developments in the Middle East and Canada-US trade relations both remain fluid. There is also uncertainty about the impact of new US tariffs and how much energy costs will seep into consumer prices more broadly."

Macklem said there could be a need to raise the policy rate further, "but given the uncertainties, we will proceed carefully".

He noted that consumer price inflation has been around 3% since April and said it's expected to rise to about 3.5% by year end. Inflation is projected to remain at or above 3% through much of next year, before returning close to the 2% target by the middle of 2028.