For three years, the Bank of Canada has held its key lending rate steady at 2.25 per cent.
This morning, it increased that rate by 25 basis points to 2.5 per cent. The Bank Rate is now 2.75 per cent, and the deposit rate is 2.45 per cent.
Despite higher energy prices, the Bank of Canada said global economic activity has remained resilient. That allowed the Bank to revise its global Gross Domestic Product forecast to 3.1 per cent this year. Growth next year and the following year's projections remain the same at 3.2 per cent.
The Canadian economy gained steam through the middle of the year. Growth in the Gross Domestic Product was 3.3 per cent in the second quarter, and recent indications suggest it'll be about 2 per cent in the third quarter.
It's stronger growth than the Bank anticipated when it released its July Report.
Consumer spending has been solid, even with a slowdown in population growth. Business investment rebounded, reflecting spending on machinery and equipment, and the growth of the oil and gas industry. Despite the ongoing trade war with the United States, exports have overall strengthened because of robust American demand.
For several months, the unemployment rate in Canada has hovered around 6.1 per cent, and indicators point to excess supply in the economy.
The Bank predicts economic growth will slow in the last quarter of the year, before picking up again next year. The Canadian economy will grow by 1 per cent this year, and 2 per cent in 2027 and 2028. However, it counsels the forecast is still subject to uncertainty, especially when it comes to Canada-U.S. trade relations.
The Bank said that, given persistently high oil prices, inflation has been around 3 per cent. It's expected to increase to 3.5 per cent by the end of the year. Near-term household and business inflation expectations are up, but longer-term inflation expectations are still anchored.
With the conflict in the Middle East now into its eighth month, oil prices are not expected to come down any time soon.
In the United States, consumer spending and investments in artificial intelligence continue to contribute to a robust economy. Growth in Europe remains resilient, and the Chinese economy rebounded in the third quarter on the strength of exports and an increase in fiscal spending.
The next policy update is expected on December 9, and the Bank's next Monetary Policy Report will be out on January 27, 2027.
