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This Bank of Canada interest rate announcement comes with a soft warning: more increases could follow.
The Bank of Canada (BoC) raised its key interest rate by 0.25 percentage points to 2.5% on Wednesday, Oct. 28, 2026. It’s the Bank’s first increase since July 2023 and the first move in a year.
The rate had held at 2.25% since the BoC’s October 2025 cut.
“Today’s rate hike speaks to the tightrope the BoC has been walking this year. It’s both a pre-emptive strike against widespread inflation and an acknowledgement that Canada’s economic prospects are brighter than the average Canadian might realize,” said Clay Jarvis, mortgage expert at Ratehub.ca. He was expecting a rate hold on Wednesday.
“The Bank of Canada noted that prices aren’t edging up because of an overheated economy; they’re rising because of energy costs. The overnight rate has no impact on gas prices, so consumers and businesses will pay more to access credit at a time when other costs are elevated.”
Experts were split on whether a rate hold or hike was in store. Now that an increase has been announced, we will walk you through what it means for you.
Governor Tiff Macklem said the Bank if Canada interest rate increase was needed to reduce the risk that high energy prices spill over into broader inflation.
“There could be a need to increase the policy rate further, but given uncertainties, we will proceed carefully,” he said, according to the Bank’s opening statement.
Statistics Canada says the consumer price index rose 3.1% from a year earlier in September, up from 3.0% in August, which is just above the top of the Bank’s 1%-3% inflation-control range.
Energy prices were up 19.0% over the year, and gas was up 27.8%. Without gas price hikes, inflation was 2.2%.
“Inflation is projected to remain above 3% through much of 2027—longer than anticipated in the July Report,” the Bank noted in its Monetary Policy Report. “It then gradually declines and settles around the 2% target by the middle of 2028 as cost pressures fade.”
Another interest rate increase is very much in the realm of possibility.
“Looking ahead, Governing Council agreed we would take future decisions one meeting at a time. There could be a need to raise the policy rate further, but given the uncertainties, we will proceed carefully,” said Macklem.
Much will depend on whether energy-driven price increase spread into everyday goods and services becoming more expensive. Growth could be hindered by a worsened job market and trade pressures.
The BoC October announcement came with a Monetary Policy Report, but the next one won’t. A decision will be made on December 9, according to the Bank’s 2026 schedule.
“Fixed mortgage rates are not directly affected by Bank of Canada rate decisions. Today’s rate hike means very little for home buyers weighing a fixed rate. The best 5-year fixed rate today is 4.34%,” said Jarvis.
“Fixed rates are elevated today partially because investors were anticipating a rate hike. Their offloading of bonds in September and October helped drive government bond yields higher. Lenders use those yields to price their fixed rate offers.”
The Financial Consumer Agency of Canada notes that a fixed rate stays the same for your entire term. The hike will only matter when you renew your mortgage or shop for a new one.
Answer a few quick questions to get a personalized quote, whether you’re buying, renewing or refinancing.
“The higher overnight rate will soon be reflected in lenders’ prime rates, which will increase by 25 basis points. Variable mortgage rates are based on prime, the lowest 5-year variable mortgage rate will likely increase from 3.45% to 3.70%,” Jarvis told MoneySense.
“The Bank of Canada may not be finished hiking. More increases could be coming in December 2026 and early 2027 if inflation hits or exceeds the Bank’s current projection of 3.5%.”
To put a 0.25% increase in dollars: According to Ratehub.ca’s mortgage payment calculator, a homeowner who put a 10% down payment on a $666,538 home with a 5-year variable rate of 3.45% amortized over 25 years (total mortgage amount of: $618,480) has a monthly mortgage payment of $3,072.
Your numbers will differ based on your rate, balance, and amortization.
“In a rising rate environment, choosing whether to go fixed or variable can be really challenging. Variables are lower and provide flexibility, but future rate increases need to be budgeted for,” said Jarvis. “Fixed rates are elevated, but once you qualify your mortgage costs are set. That kind of stability can be worth paying a premium for.”
He noted that both fixed and variable rates could rise further this year, so home buyers and renewing homeowners should consider getting a pre-approval underway.
“Locking in a rate is a reliable hedge against paying more for a mortgage,” he added.
A higher rate makes borrowing more expensive for buyers, especially right now when the job market is already weak.
Housing costs have been easing for homeowners, though. Statistics Canada says the mortgage interest cost index fell 0.2% year over year in September, while overall shelter costs rose 1.8% and rent rose 2.8%. Today’s hike will start to push that mortgage interest figure the other way for people with variable rates or upcoming renewals.
“Rising borrowing costs are unlikely to spur home buyers to action this fall. The market already took a step backward in September, and that was when variable mortgage rates were around 3.4%,” noted Jarvis.
“Buyers are facing rising borrowing costs, higher gas prices, and uncertainty around the economy. It’s arguable that rates aren’t even their biggest concern right now. Stability in non-mortgage costs and predictability around the future of the economy may do more to increase buyer confidence.”
Faye Lucas, Head of Consumer Trust at Koho, is concerned about how this rate increase will affect Canadians for whom money is already getting tighter.
“The Bank of Canada’s decision to raise rates is aimed at keeping inflation from becoming entrenched, but it lands on households already stretched by grocery bills, higher energy costs, credit card balances and mortgage payments,” she said in an email to MoneySense.
“Controlling inflation matters for long-term affordability, but Canadians also need practical tools to manage their money when there’s little room left to absorb higher borrowing costs.”
Jarvis highlighted a silver lining for some: “This is welcome news for Canadian savers and those with passive investments such as GICs and HISAs, as they should see their rate of return increase after today’s rate hike.”
The Bank’s 2026 schedule and rate history show how the year has gone.
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