The BoC raised its overnight rate by 25 basis points, warning that persistent energy costs could keep inflation elevated and hinting at another hike if needed.

The Bank of Canada (BoC) lifted its overnight policy rate by a quarter‑percentage point to 2.5% on Thursday, citing the risk that higher‑for‑longer energy prices and stronger cost pass‑through could sustain inflation pressures. Governor Tiff Macklem said a further increase may be required, but the Governing Council stopped short of committing to a preset path.

Energy costs and inflation outlook

The central bank explained that while businesses have so far absorbed higher input costs, its surveys indicate they will begin shifting more of those expenses onto consumers over the next year. Macklem warned that inflation now appears less likely to stay well contained, even as longer‑term inflation expectations remain anchored.

Housing market and broader risks

Excess supply in the housing sector and a weakening market added nuance to the decision. Macklem noted that the policy rate, even after the hike, is still not high enough to curb growth, whereas senior deputy governor Carolyn Rogers said borrowing costs are already weighing on housing activity. The BoC also flagged uncertainty surrounding Canada‑U.S. trade ties and the overall economic outlook.

What traders are watching next

• Further data on Canadian CPI and core inflation
• Energy price trends, especially natural gas and oil
• Housing market indicators such as new‑home sales and mortgage applications
• Any comments from the BoC on the need for additional tightening

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This article is compiled from international market news for information only. It is not investment advice.