Residential Market Commentary - Rate hike reasoning

Against the advice of many market watchers the Bank of Canada kept its own counsel and raised its benchmark interest rate.  The quarter-point increase was the first hike in more than three years and puts the Bank’s overnight Policy Rate at 2.50%.

While the increase was widely expected many analysts and economists had cautioned against it because of the general weakness of the Canadian economy: GDP growth is down, unemployment is up and trade tensions with the U.S. continue.

The BoC said it is mindful of the on-going trade uncertainty, but pointed out GDP had continued to grow despite U.S. tariffs.  The Bank also notes that its chief concern continues to be inflation, fueled by rising energy costs as a result of the wars in Iran and Ukraine.

"The longer energy prices remain high, the more likely it is these costs will spill over to consumer prices more broadly," BoC Governor Tiff Macklem said.

The Bank’s Governing Council signalled caution about future moves and did not make a firm commitment to any further action.

"Looking ahead, Governing Council agreed we would take future decisions one meeting at a time," Macklem said.

"There could be a need to raise the policy rate further, but given the uncertainties, we will proceed carefully."

The latest GDP numbers show no growth in August and project a 0.1% contraction in September.  The next, and final, rate decision for 2026 is set for December 9.