Bank of Canada to raise rates to 2.50% on October 28 and once again by end-March

The Bank of Canada has announced it will raise its overnight interest rate by 25 basis points to 2.50% on October 28, with a further increase by the end of March to prevent any additional inflationary pressures. According to a majority of economists polled by Reuters, this is a shift from previous forecasts that expected the bank to maintain the rate at 2.25% until the end of 2026.

The rise in interest rates comes as inflation reached 3.1% in September, slightly above the Bank of Canada's target range of 1% to 3%. Inflation expectations have been escalating due to the breakdown in trade talks with the United States, Canada's primary export market. The Bank of Canada Governor Tiff Macklem hinted at a potential rate hike in remarks on Saturday, leading to a significant shift in market expectations from a 30% chance of a rate hike in October to a three-in-four likelihood.

Many economists revised their views from a hold to a hike after Macklem's comments, citing the responses from the Bank of Canada's business outlook and consumer surveys. The majority of economists surveyed believe the Bank of Canada will raise the overnight rate by a quarter percentage point to 2.50%, marking the shortest policy tightening campaign in 30 years.