Key points on boc rate decision
- The Bank of Canada raised its policy rate by 25 bp to 2.50%, its first hike since July 2023.
- The move was widely expected. Markets had priced roughly an 84% chance beforehand, so the Canadian dollar barely reacted.
- The BoC said more hikes may be needed and will decide one meeting at a time. The next decision is on 9 December.
- USD/CAD had already fallen from an 18-month high near 1.4300 to around 1.40–1.41 as hike bets built.
What happened
| Item | October 2026 decision / forecast | Previous |
|---|---|---|
| Policy rate | 2.50% | 2.25% (held since October 2025) |
| CPI inflation by end-2026 | About 3.5% | About 3% since April |
| 2027 inflation forecast | 3.1% | 2.0% (July report) |
| 2026 GDP growth forecast | 1.0% | 0.7% (July report) |
| Return to 2% target | Around mid-2028 | – |
Governor Tiff Macklem said that with the inflation outlook substantially higher and the economy showing resilience, a hike was needed to reduce the risk that high energy prices spill over into generalised inflation. He pointed to two changes since July: a worse inflation outlook, as the Middle East war keeps oil prices high, and a modestly better growth outlook, despite US trade actions.
Underlying inflation is still close to target. CPI excluding gasoline is 2.2%, and core measures remain close to 2%. The BoC expects businesses to pass on more of their higher costs over the next year.
Why it matters
A pre-emptive move. The BoC acted before core inflation picked up, aiming to stop the energy shock from feeding through to wider prices. It noted that even after the hike, the rate is still below the neutral level, which is neither restrictive nor stimulative. That suggests room for more.
Not everyone agrees. Economists who opposed a hike pointed out that core inflation is still around 2%, and that higher rates could slow a modest recovery amid US trade tensions and a weak job market. Canada lost 68,300 jobs in September after a 41,700 loss in August, wiping out its job gains for 2026. BMO Global Asset Management’s Earl Davis said the BoC is trying to get ahead of the game, but may have moved into a hiking cycle too early.
Growth risks remain. Macklem warned the fourth quarter will likely show slower growth as new US tariffs weigh on activity.
Market reaction
- CAD: The Canadian dollar hardly moved on the hike, since it was mostly priced in.
- The run-up: Hike odds jumped from below 50% to about 84% in the week before the meeting. USD/CAD fell from just under 1.4300, an 18-month high on 9 October, to around 1.4063 by 21 October.
- Fed the same day: The Fed held at 3.75–4.00% later on 28 October, and the US dollar slipped about 0.2% after Warsh’s press conference.
One analyst view, reported by Pound Sterling Live, was that a hike without guidance for another would leave the loonie with nothing left to collect. The BoC did signal that more hikes could follow, which partly addresses that risk.
USD/CAD outlook and key levels
| Level | Price | Why it matters |
|---|---|---|
| Resistance | 1.4300 | 18-month high (9 October) |
| Resistance | 1.4200 | Bottom of the early-October range |
| Support | 1.4045 | Recent support zone |
| Support | 1.4000 | Key psychological and reversal zone |
What drives USD/CAD next:
- Rate gap: Both the BoC and Fed lean toward December hikes. The pair may depend on which central bank sounds more hawkish.
- Oil: Crude is Canada’s biggest export. Brent near $117 supports the CAD, though the link has been uneven this year.
- Canadian data: Weak jobs data could cut BoC hike bets for December and lift USD/CAD.
- US trade policy: New US tariffs on Canadian goods remain a downside risk for the CAD.
Possible scenarios:
- If Canadian inflation rises as the BoC expects and oil stays high, a December BoC hike becomes more likely. That could support the CAD, and a break below 1.4000 is likely to come into focus.
- If Canadian jobs data stays weak and the Fed sounds more hawkish, USD/CAD may rebound toward 1.4200.
Use our Pip Value Calculator to check what each pip in USD/CAD is worth for your position size.
Impact on Indian traders
No direct NSE contract: CAD/INR and USD/CAD are not listed on NSE’s currency segment, so the BoC’s effect reaches Indian traders indirectly. Trading USD/CAD with unauthorised offshore platforms is not permitted under FEMA.
Indirect links: The BoC hike is part of a wider global tightening trend driven by high oil prices. That backdrop, with a hawkish Fed and Brent near $117, is what matters most for USD/INR. NSE lists USD/INR, EUR/INR, GBP/INR and JPY/INR, plus EUR/USD, GBP/USD and USD/JPY.
Oil and the rupee: The same oil prices that pushed the BoC to hike also raise India’s import bill and add pressure on the rupee. Our Risk-On / Risk-Off Meter can help you track how oil-driven risk swings affect INR pairs.
What to watch next
| Date (IST) | Event | Why it matters for USD/CAD |
|---|---|---|
| Thu, 29 Oct, 18:00 | US Q3 GDP and September PCE | The US side of the pair |
| Fri, 30 Oct | Canada August GDP | Growth check after the hike |
| Tue–Wed, 3–4 Nov | US midterm elections | US fiscal and trade outlook |
| Fri, 6 Nov | Canada and US October jobs reports | Key for December hike odds on both sides |
| Mid-Nov | Canada October CPI | Tests the BoC’s inflation forecast |
| Wed, 9 Dec | Next BoC decision | Whether a second hike follows |
| Tue–Wed, 8–9 Dec | Next FOMC | December Fed hike widely priced |
Track all release times on our Economic Calendar, and find more coverage in Market Analysis & News. Related: Central Bank Super Week preview
FAQs
What did the Bank of Canada decide in October 2026?
It raised its policy rate by 25 bp to 2.50% on 28 October, its first increase since July 2023, and said more hikes may be needed.
Why did the Bank of Canada raise rates?
To reduce the risk that high energy prices from the Middle East war spread into broader inflation. It now expects inflation of about 3.5% by the end of 2026.
When is the next Bank of Canada decision?
On 9 December 2026.
