The Bank of Canada (BoC) raised its overnight rate by 25 basis points to 2.5%, warning that higher-for-longer energy prices and stronger cost pass-through could keep inflation elevated. Governor Tiff Macklem said another increase may be needed, although the Governing Council remains cautious and has not set a predetermined path.
TThe BoC said it acted to reduce the risk that persistent energy costs would spread more broadly through the prices of goods and services. Businesses have largely absorbed higher input costs so far, but the Bank’s surveys suggest they will pass more of those costs on over the coming year. Macklem said inflation now looks less likely to remain well contained, while longer-term expectations remain anchored.
Signs of excess supply and a weaker housing market complicated the decision. Macklem said the policy rate, even after the hike, was not high enough to restrain growth, but Rogers acknowledged that borrowing costs were already weighing on housing. The Bank also faces considerable uncertainty over trade ties with the US and the wider economic outlook.
The overall message was hawkish but measured. Further tightening remains possible if energy-driven inflation becomes broader or more persistent, yet Macklem stressed that there is no predetermined rate path and that each decision will depend on the inflation outlook and incoming data.
