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October 28, 2026BANK OF CANADA MONETARY POLICY The Bank of Canada raised its target for the overnight rate at 2.50%, with the Bank rate at 2.75% and the deposit rate at 2.45%.
The ongoing conflict in the Middle East continues to keep energy prices elevated and disrupt supply chains. In addition, new U.S. tariffs have been announced. Both developments remain fluid.
Overall, the global economy has remained resilient despite geopolitical pressures and higher energy prices. Growth was revised up to 3.1% in 2026, while growth is projected at 3.2% in 2027, unchanged from the July projection, and 3.1% in 2028, 0.1 percentage point below the July projections.
In the United States, economic growth remains strong, supported by consumer spending and AI-related investment. US labour market is expected to experience moderate job gains with unemployment holding steady just above 4.0%. GDP is projected to grow 2.5% in 2027 and 2028. Inflation should ease over projection horizon as the effects of high energy costs and tariffs fade. Higher rates are weighing on household spending and inflation and markets expect at least two additional rate increases by the end of 2027.
Growth in the euro area was resilient and broad based in the second quarter of 2026 with growth revised up for 2026 to 0.9% and unchanged with July projections at 1.2% in 2027 and 1.3% in 2028. Growth is projected to remain strengthen as government spending on defense and infrastructure increases boosting domestic demand.
China’s economy rebounded in the third quarter supported by strong exports and increased government spending. Bank of Canada projects China’s GDP to grow 4.6% in 2026, 4.2% in 2027, and 4.1% in 2028.
Canadian economic activity picked up in the second quarter driven by solid consumption and strong gains in investment and exports. Growth is expected to stay solid in the third quarter, then slow in the fourth quarter, mainly because of new US tariffs, greater trade policy uncertainty and tighter financial conditions. GDP is expected to grow 1.0% in 2026, 2.0% in 2027 and 2028.
CPI inflation was 3.1% in September pushed up by components related to the energy market. Cost pressures are building as higher fuel and import prices raise business costs. Businesses have absorbed most of these costs so far, but Bank surveys suggest they will pass more on over the next year. Near-term inflation expectations have risen, while longer-term expectations remain anchored. CPI inflation is expected to average 2.9% in 2026, 3.1% in 2027, and 2.2% in 2028.
Labour market conditions have remained unchanged since the start of the year. Employment is roughly unchanged since January and net job creation was concentrated in industries less reliant on US demand, while public sector employment fell sharply. Unemployment rate was around 6.5% in recent months. However, labour demand remains subdued, and indicators continue to point to excess supply in the economy.
The current projections assume that shipping through the Strait of Hormuz gradually returns to normal and refinery margins ease. Prolonged disruptions could keep the prices elevated for longer and higher fuel prices would raise inflation. The base case also assumes that current US tariffs remain in place, and that trade-related uncertainty fades gradually. Further US trade restrictions or more persistent uncertainty could weaken exports, business investment and household spending, although softer demand would also limit the pass-through of higher energy costs.
Governing Council will assess the sustainability of the economic rebound and the outlook for inflation to keep it close to the 2.0% target and is prepared to adjust monetary policy as needed. The Bank remains committed to maintaining Canadians’ confidence in price stability through this period of global upheaval.
The next scheduled date for announcing the overnight rate target is December 9, 2026 and the Bank’s next Monetary Policy Report will be released on January 27, 2027.
Source: Monetary Policy press conference; Monetary Policy press release; Monetary Policy report (October)
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