Bank of Canada Raises Its Rate to 2.5% as Inflation Outlook Climbs: What It Means for GTA Variable-Rate Borrowers, Renewers and Buyers

The Bank of Canada raised its target for the overnight rate by 25 basis points to 2.5% on Wednesday, October 28, moving up from 2.25%. The Bank Rate is now 2.75% and the deposit rate 2.45%. The decision came with the October Monetary Policy Report (MPR), which says inflation in Canada is projected to stay around 3% through much of 2027 before returning close to 2% by the middle of 2028.

Yesterday we laid out what GTA borrowers should watch going into this decision. Here is what the Bank actually did and said, and what it means if you have a variable-rate mortgage, a renewal coming up, or a purchase in progress.

The decision in numbers

• Policy rate: 2.5%, up 25 basis points from 2.25%
• Bank Rate: 2.75%; deposit rate: 2.45%
• CPI inflation: around 3% since April, expected to rise to about 3½% by the end of 2026
• Inflation forecast for 2027: an average of 3%, one percentage point above the July projection, then back to 2% in the middle of 2028
• Canadian GDP growth forecast: 1% in 2026, then 2% in 2027 and 2028, somewhat stronger overall than in July
• Next decision: December 9, 2026. The next MPR is due January 27, 2027.

Why the Bank raised rates

The short version is energy prices that won't come down. The Bank said that "given persistently high oil prices," CPI inflation has been around 3% since April. It noted that the conflict in the Middle East "is now in its eighth month and there is no clear path to resolution."

The underlying numbers are still calmer than the headline. Excluding gasoline, inflation was 2.2% in September, and the Bank said its measures of core inflation "remain close to 2%." What worried Governing Council is what comes next. "Cost pressures are building," the statement said, with high fuel prices raising production and transportation costs and imported industrial and electronics input prices also up. Businesses have mostly absorbed those costs so far, but the Bank's surveys "suggest cost pass-through will increase over the next year." Near-term household and business inflation expectations have risen, though longer-term expectations "remain well anchored."

Growth also gave the Bank room to act. GDP grew 3.3% in the second quarter, and recent indicators point to about 2% in the third, both stronger than the July Report expected. Unemployment has been around 6½% for several months. The Bank said it raised the rate "to reduce the risk that continuing high energy prices spread broadly to the prices of other goods and services."

Is this the start of more hikes?

The Bank left the door open without committing. The statement said: "There could be a need to increase the policy rate further, but given uncertainties, Governing Council agreed to proceed carefully." The MPR names energy prices and Canada's trade relationship with the United States as "the two most important risks to the outlook for inflation." We won't put odds on December 9. The Bank itself described the outlook as subject to considerable uncertainty.

What it means for GTA variable-rate borrowers

Variable-rate mortgages and home equity lines of credit are priced off lenders' prime rates, which follow the Bank's policy rate. When the Bank moves, the big banks usually adjust prime within a day or so. Check your lender's announcement for the new prime rate and the date it takes effect. For borrowers with adjustable payments, a 25-basis-point increase raises the monthly payment. For those with fixed-payment variable mortgages, more of each payment goes to interest and less to principal. Either way, it is worth checking your next statement and asking your lender how the change affects your amortization.

What it means for renewals and fixed-rate buyers

Fixed mortgage rates follow Government of Canada bond yields more than the overnight rate. The MPR includes a focus section on why long-term sovereign bond yields have "risen sharply since the start of the year, reaching their highest levels in more than a decade across many advanced economies." The press release also said global financial conditions have tightened since July, with higher advanced-economy bond yields. Higher yields feed into fixed-rate pricing, so GTA owners renewing in the coming months should not expect today's decision to bring fixed rates down. If your renewal is coming up soon, a rate hold from your lender or a broker can lock in today's offer while you compare.

What it means for buyers

The Bank expects housing "to remain relatively weak" as consumption growth moderates. For GTA buyers, that means a slower market with borrowing costs that are now edging up rather than down. If you have a pre-approval, check its expiry date and the rate it guarantees, since a higher prime may affect how much you qualify for on a variable product. Our preview covers the most recent GTA sales, prices and mortgage-rate data going into today's decision.

What's next

Governor Tiff Macklem and Senior Deputy Governor Carolyn Rogers were scheduled to hold a press conference at about 10:30 a.m. ET today. The Bank's next rate announcement is December 9, 2026, and the next Monetary Policy Report is January 27, 2027.

Sources

• Bank of Canada: Bank of Canada raises the policy rate by 25 basis points to 2½%, October 28, 2026
• Bank of Canada: Monetary Policy Report, October 2026
• Real Estate HQ: our October 27 preview, with the TRREB, CMHC, CPI and Bank of Canada rate data behind it

Compiled by the Real Estate HQ editorial desk from the Bank of Canada's October 28, 2026 press release and Monetary Policy Report (linked above) and reviewed for accuracy. This is general information, not mortgage or financial advice. Lenders set their own prime and mortgage rates; check with yours.