Bank of Canada raises its key rate to 2.5% — the first increase since July 2023, and what it means for mortgages

What happened

On October 28, 2026 the Bank of Canada raised its policy rate by 25 basis points (0.25 percentage points) to 2.5%. Before this it was 2.25%. It is the first increase since July 2023.

• Inflation (how fast prices are rising) was 3.1% in September.
• The Bank named rising energy prices and uncertainty about trade with the United States as the two biggest risks pushing up the cost of living.
• In October, Brent crude (the world benchmark for oil) averaged $124.96 a barrel, about $35 more than in July.
• In the Bank’s survey, 60% of consumer-facing businesses said they expect to pass higher costs on to customers in the next 12 months.
• The economy grew 3.3% in the second quarter, and the Bank expects growth to slow to 2% in the third quarter. Unemployment has been around 6.5% in recent months.
• The governor said, in short, that the rate may need to go up further, but the Bank will proceed carefully because of the uncertainty.

In a chart: from the last hike to now

This is the first increase since July 2023. The chart shows the path down from that 5% peak and where the rate went back up to this time.

The terms in plain words

• Policy rate (target for the overnight rate): the one-day lending rate the central bank sets. Bank prime rates follow it, and variable-rate mortgages and lines of credit (HELOCs) are priced off prime.
• Basis point: 0.01 of a percentage point. 25 basis points is 0.25 percentage points.
• Inflation: how much prices for goods and services have risen compared with a year ago, as a percentage. The Bank’s target is 2%.
• Monetary Policy Report: the report the Bank publishes four times a year explaining its outlook for the economy and inflation. The October report came out with this decision.

The Bank’s reasons

The Bank said high energy costs have not yet spread widely into other prices, but cost pressures are building and businesses plan to pass them on. Because the inflation outlook is worse than in July and the economy is holding up better than expected, it raised the rate to keep the energy price rise from turning into general inflation.

It also said new U.S. tariffs will likely slow growth in the fourth quarter, and that with unemployment around 6.5%, finding work is harder than usual.

What it means for GTA buyers, sellers and renters (explanation)

This explains where a rate increase lands. It is not advice to pick a particular mortgage. Check actual rates and terms with your lender.

• If you have a variable-rate mortgage: when banks raise their prime rate, your interest cost rises right away. If your payment is fixed, the payment stays the same but less of it goes to principal. Ask your lender which kind you have.
• If you have a fixed-rate mortgage: nothing changes for the rest of your term. At renewal, the rate is set again at that time’s rates.
• If you are buying: the mortgage stress test (a check that you could still pay at a higher rate than your actual one) moves with rates, so the amount you can borrow may change. Re-checking a pre-approval is the usual step.
• If you are selling: higher borrowing costs for buyers can affect demand. This increase is 0.25 percentage points, and this article does not predict how the market will react.
• If you rent: even if your landlord’s interest costs rise, most existing tenants in Ontario can only get rent increases within the yearly guideline. For exempt buildings, see "rent control exemption" in the glossary.

What to watch next

The Bank announces its policy rate on eight fixed dates a year. Check the official schedule on the Bank of Canada website for the next date. Changes to bank prime rates are posted on each bank’s website. This article does not predict the next decision.