Canada raises interest rate to 2.5% as oil prices rise

Canada's central bank raised its key interest rate by a quarter point to 2.5 percent on Wednesday, saying it wanted to stop higher oil prices from spreading into broader inflation.

The Bank of Canada said the move was its first interest rate increase since July 2023, when it was trying to control inflation linked to the Covid-19 pandemic.

The bank said Canadian businesses were adapting to changes in trade with the United States, which could support stronger growth than first expected. It also said there was no sign that energy-price inflation was set to ease.

“The conflict in the Middle East is now in its eighth month and there is no clear path to resolution,” the Bank of Canada said.

Central bank governor Tiff Macklem said Canadians were paying more for fuel. “We can't change that, but what we don't want is those higher energy prices to pass through and raise the prices of other goods,” he told reporters.

Deputy governor Carolyn Rogers said uncertainty over the Middle East conflict and US trade tensions meant the bank needed to be careful about its next steps.

TD Bank said the rate increase likely gave the Bank of Canada several months to assess whether higher energy and input costs were filtering through to consumer prices.