Bank of Canada Raises Rates to 2.5%: What the First Hike Since 2023 Means
The Bank of Canada raised its policy rate for the first time since 2023. The move is small, but the reason behind it, an oil-driven jump in gas prices, makes it unusual.
- Rates checked October 28, 2026
- By Krish Paul
- 8 min read
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Here is what changed on October 28, why the Bank acted while core inflation sits near 2%, how this compares with the last 7 years, and what it costs a typical borrower.
The short answer
On October 28, 2026, the Bank of Canada raised its policy rate by 0.25 percentage points to 2.50%. It is the first increase since July 2023. The big banks raised prime from 4.45% to 4.70%, effective the next day, so variable-rate mortgages and lines of credit now cost more. Fixed-rate mortgages already in place do not change.
The Bank says it acted to stop high energy prices from spreading to other prices, and that it may need to raise again. Its next decision is on December 9.
What the Bank of Canada decided on October 28
The Bank of Canada press release raised the target for the overnight rate from 2.25% to 2.50%. The Bank Rate moved to 2.75% and the deposit rate to 2.45%. Commercial banks followed the same day. BMO and the other big banks set their prime rate at 4.70%, effective October 29.
| Rate | Before | From October 29 | Change |
|---|---|---|---|
| Bank of Canada policy rate | 2.25% | 2.50% | +0.25 |
| Bank Rate | 2.50% | 2.75% | +0.25 |
| Prime rate at BMO, RBC, TD and CIBC | 4.45% | 4.70% | +0.25 |
Sources: Bank of Canada press release, October 28, 2026; BMO newsroom, October 28, 2026. The Bank Rate sits 0.25 points above the policy rate.
The policy rate had been 2.25% since October 2025. For a full year the Bank held steady. What changed its mind was energy.
Why raise rates when core inflation is near 2%
This is the part that makes this hike different. It is aimed at inflation that has not spread yet. According to Statistics Canada, prices rose 3.1% in the year to September. Take gasoline out, and inflation was only 2.2%.
| Category | Year-over-year change |
|---|---|
| All items (headline CPI) | 3.1% |
| Gasoline | 27.8% |
| Energy | 19.0% |
| All items excluding gasoline | 2.2% |
| Rent | 2.8% |
| Shelter | 1.8% |
| Food from stores | 1.7% |
| Mortgage interest cost | -0.2% |
Source: Statistics Canada, Consumer Price Index, September 2026, released October 19, 2026.
Statistics Canada links the oil price rise to ongoing uncertainty about the wars in the Middle East. Crude oil reached its highest level since May. The Bank of Canada says CPI inflation has been around 3% since April and expects it to reach about 3.5% by the end of the year.
Core measures, which strip out volatile items, are still close to the 2% target. The worry is what comes next. The Bank says cost pressures are building and that businesses are expected to pass more of them on over the next year. A small hike now is meant to keep that from turning into lasting inflation.
Growth has held up
The Bank can raise rates partly because growth held up. GDP grew 3.3% in the second quarter, and early numbers point to about 2% in the third. Unemployment has stayed around 6.5% for several months. The Bank still expects new U.S. tariffs to slow growth in the fourth quarter.
This hike in context: rates since 2019
The overnight rate became the Bank of Canada’s main policy tool through a series of changes in the 1990s, and since December 2000 the Bank has set it on fixed announcement dates, as its history of the key rate explains. It has twice been cut to 0.25%: in 2009, after the financial crisis, and in 2020.
The last seven years have been a round trip. Rates went to the floor in the pandemic, climbed to 5.00% in 10 hikes, and came back down. Here is how each phase played out.
| Phase | When | Moves | Rate path |
|---|---|---|---|
| Pandemic cuts | March 2020 | 3 cuts | 1.75% to 0.25% |
| Hiking cycle | March 2022 to July 2023 | 10 hikes | 0.25% to 5.00% |
| Cutting cycle | June 2024 to October 2025 | 9 cuts | 5.00% to 2.25% |
| Pause | October 2025 to October 2026 | 0 moves | 2.25% |
| New hike | October 2026 | 1 hike | 2.25% to 2.50% |
Source: Bank of Canada overnight rate target data, by the date each change took effect. Counted by Gizly.
Two things stand out. First, 2.50% is still half the 2023 peak. Second, it sits at the low end of the range the Bank calls neutral, 2.25% to 3.25% in its July 2026 report. A neutral rate neither speeds up nor slows down the economy. So even after this move, rates are not yet working hard against growth.
What the hike means for your money
Variable-rate mortgages
Variable rates are set as prime plus or minus a discount. When prime rises 0.25 points, so does your rate. If your payment adjusts with the rate, it goes up. If your payment is fixed, it stays the same, but more of it goes to interest and less to your balance.
Take a hypothetical adjustable-rate mortgage at prime minus 0.25 points, with 25 years left. The rate goes from 4.20% to 4.45%.
| Balance | At 4.20% | At 4.45% | More a month | More a year |
|---|---|---|---|---|
| $300,000 | $1,616.83 | $1,658.99 | $42.17 | $506.01 |
| $500,000 | $2,694.71 | $2,764.99 | $70.28 | $843.36 |
| $750,000 | $4,042.07 | $4,147.49 | $105.42 | $1,265.04 |
Hypothetical figures calculated by Gizly with monthly compounding. Your lender’s discount, compounding and amortization will change the exact numbers.
Put another way, each 0.25-point move on a $500,000 balance costs about $70 a month. If the Bank raises again in December by the same amount, add a similar amount again. You can test your own numbers with our mortgage payment calculator.
Home equity lines of credit
HELOCs and most unsecured lines of credit are priced at prime plus a margin, and many borrowers pay interest only. On a $50,000 balance at prime plus 0.5 points, the rate goes from 4.95% to 5.20%. Monthly interest rises from $206.25 to $216.67, or $125 more a year.
Fixed-rate mortgages and renewals
If you have a fixed rate, nothing changes until your term ends. Fixed rates offered to new buyers and people renewing follow bond yields more than the policy rate, so they can move before or after a Bank of Canada decision. If you renew in the next few months, compare offers early. Ask your lender whether it will hold a rate for you, and for how long. Our variable mortgage rates page tracks current offers.
Savings, GICs and the dollar
Banks set their own savings and GIC rates. A higher policy rate gives them room to pay more, but nothing forces them to, so check whether your high-interest savings rate moves in the next few weeks. Compare current offers in our GIC rates roundup. The Bank notes the Canadian dollar is around 71 cents US.
What happens next
The Bank’s own words leave the door open. It says there could be a need to increase the policy rate further, but that it will proceed carefully because the outlook is uncertain. Its new forecast, released with the decision, looks like this:
- Growth: about 1% in 2026, then 2% in both 2027 and 2028.
- Inflation: about 3.5% by the end of 2026, an average of 3% in 2027, and back to 2% by mid-2028.
- World economy: global growth of 3.1% in 2026 and 3.2% in 2027 and 2028.
What will decide the December 9 move
- Oil and gas pricesIf crude keeps rising, headline inflation climbs and pressure for another hike grows.
- Core inflationWatch the measures that leave out energy. If they move well above 2%, prices are spreading.
- U.S. tariffsNew tariffs are expected to slow growth this quarter. A sharp slowdown argues for waiting.
- JobsUnemployment has held around 6.5%. A jump would make the Bank more cautious.
What to do this week
- Check your mortgage type. Your annual statement or online banking shows whether your rate is fixed, adjustable or variable with fixed payments.
- Look for a lender notice. If your payment adjusts, your lender should tell you the new amount and date.
- Review your lines of credit. Paying down a prime-based balance now gives you a return equal to the rate you no longer pay.
- Plan for renewal. If your term ends within a year, start comparing offers early.
- Move idle cash. If your savings rate does not rise, consider a better high-interest account or a GIC.
Frequently asked questions
What is the Bank of Canada interest rate now?
The Bank of Canada raised its policy rate, the target for the overnight rate, by 0.25 percentage points to 2.50% on October 28, 2026. The Bank Rate is now 2.75% and the deposit rate is 2.45%.
Why did the Bank of Canada raise rates in October 2026?
Inflation has been around 3% since April, mostly because of energy. Gasoline prices were up 27.8% from a year earlier in September. The Bank raised its rate to reduce the risk that high energy prices spread to other goods and services.
When was the last time the Bank of Canada raised rates?
Before October 2026, the last increase took effect in July 2023, when the policy rate reached 5.00%. The Bank then cut nine times between June 2024 and October 2025, to 2.25%, and held there for a year.
How does the rate hike affect my mortgage?
If you have a variable-rate mortgage, your rate usually moves with your lender’s prime rate, which rose from 4.45% to 4.70% at BMO, RBC, TD and CIBC on October 29, 2026. Fixed-rate mortgages do not change during the term, but the rate you get at renewal depends on market rates at that time.
What is the prime rate in Canada now?
BMO, RBC, TD and CIBC raised their prime rate from 4.45% to 4.70%, effective October 29, 2026. Variable mortgages, home equity lines of credit and many lines of credit are priced from prime.
When is the next Bank of Canada rate announcement?
The next decision is scheduled for December 9, 2026. The next Monetary Policy Report, with updated forecasts, is due on January 27, 2027.
- Sources, checked October 28, 2026: Bank of Canada: Bank of Canada raises the policy rate by 25 basis points to 2½% (October 28, 2026); Bank of Canada: target for the overnight rate, data series V39079 (data to October 27, 2026); Bank of Canada: Policy interest rate (modified 2026-10-14); Bank of Canada: A history of the key interest rate; Statistics Canada: Consumer Price Index, September 2026 (released 2026-10-19); Bank of Canada: Monetary Policy Report July 2026, assumptions (neutral rate range) (July 15, 2026); BMO: BMO increases CDN$ prime lending rate to 4.70 per cent (October 28, 2026); Hashtag Investing: RBC, TD, CIBC and BMO raise prime lending rates to 4.70% (October 28, 2026).
- Method: Mortgage payments use the standard annuity formula with monthly compounding over 300 months, re-checked by running each balance month by month to zero. HELOC interest is balance times rate divided by 12. Year-end rates and cycle counts come from the Bank of Canada data series.
- Photo: Row houses in Montreal by the Bialons on Unsplash.
Important: This article is general information, not financial advice. Your lender’s terms decide how a rate change affects you. Gizly is not affiliated with the Bank of Canada or any bank named here. See our affiliate disclosure.
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