Bank of Canada Raises Interest Rates: Was It the Right Move for Canada’s Economy?

The Bank of Canada made headlines this week, announcing a 0.25 percentage point increase to its target for the overnight rate on October 28, bringing it from 2.25% to 2.50%.

I understand why the Bank is concerned about inflation. Nobody wants to see the cost of living continue to climb. But when I look at everything happening across Canada right now, I have to wonder whether raising interest rates was the right decision at this particular time.

We have higher living costs, ongoing trade uncertainty with the United States, households feeling financially stretched, and a federal budget scheduled for November 5.

Let us take a closer look at what is happening and, more importantly, what this means for your mortgage.

Why Did the Bank of Canada Raise Rates?

The biggest concern is inflation.

Energy prices remain elevated, international conflict is creating uncertainty, and ongoing trade tensions with the United States are putting additional pressure on businesses and consumers.

The Bank is concerned that these higher costs could spread throughout the economy, affecting everything from groceries and transportation to everyday goods and services. That is a legitimate concern.

Not all inflation comes from Canadians spending too much money. Higher oil prices, international trade disputes, tariffs, and supply chain disruptions can all drive up costs regardless of what interest rates are doing.

Increasing borrowing costs may help slow consumer spending, but it will not bring down global oil prices or resolve trade disputes. That is why I think we need to consider the bigger economic picture before deciding that higher interest rates are the answer.

What About the Rest of Canada’s Economy?

This is where I have some concerns.

While parts of the Canadian economy have performed better than expected, that does not necessarily mean Canadian households are feeling financially comfortable. The Bank reported that the unemployment rate had been around 6.5% for several months, while broader indicators continued to show some excess supply in the economy.

Talk to homeowners, young families, or small business owners, and you will hear many of the same concerns. Groceries are expensive. Property taxes and insurance premiums continue to put pressure on household budgets. Housing affordability remains a challenge, particularly here in Metro Vancouver.

Businesses are dealing with higher operating costs, uncertain trade conditions, and difficult decisions about hiring and investing. Now we are adding another increase in borrowing costs.

Higher interest rates are designed to reduce demand and help control inflation. That is how monetary policy works. But there is a fine line between cooling inflation and slowing an economy more than necessary.

The Bank pointed to stronger than expected growth as one reason for its decision, and that is worth acknowledging. Still, stronger economic numbers do not automatically mean every Canadian household is in a stronger financial position.

The U.S. Trade Situation Adds Another Layer of Uncertainty

Canada’s relationship with the United States remains one of the biggest economic questions heading into 2027.

Tariffs, trade negotiations, and uncertainty surrounding future arrangements are making it difficult for Canadian businesses to plan ahead.

Think about a Canadian manufacturer trying to decide whether to expand operations, purchase equipment, or hire additional employees. If that business does not know what its costs or access to the U.S. market will look like six months from now, it will naturally be more cautious.

That uncertainty affects investment, employment, and eventually household spending. And while the Bank of Canada can influence domestic borrowing costs, it cannot directly fix international trade problems.

That is an important distinction when we are discussing what is driving inflation and economic uncertainty.

Why Not Wait Until After the Federal Budget?

This is probably my biggest question about the Bank’s decision.

The federal government scheduled Budget 2026 for November 5, just eight days after the interest rate announcement. Government spending, taxation, borrowing, and economic initiatives can all influence inflation and economic growth.

Depending on what is announced, the budget could introduce measures that stimulate the economy, affect business investment, or create additional inflationary pressure.

I recognize that the Bank of Canada operates independently of the federal government, and that independence is important. I also understand that monetary policy decisions need to be forward looking. The Bank cannot simply wait for every new piece of economic information.

But fiscal policy and monetary policy ultimately affect the same economy.

Would waiting have changed the decision? Maybe not. There are arguments on both sides. Acting now may help prevent inflation from becoming more persistent, while waiting could have provided additional information about the economic outlook.

Either way, I think the timing deserves some discussion.

What Does This Mean for Your Mortgage?

The impact of this week’s announcement will depend on the type of mortgage you have.

One thing I always remind clients is that fixed mortgage rates do not move directly with the Bank of Canada’s overnight rate. Fixed rates are influenced more by government bond yields, lender funding costs, and expectations about where interest rates are heading.

That is why choosing between fixed and variable is not just about trying to predict the Bank of Canada’s next move. It is about finding the right mortgage for your financial situation and your plans.

What Could a 0.25% Increase Cost You?

For interest only borrowing, a 0.25 percentage point increase works out to approximately $250 more in annual interest for every $100,000 outstanding.

That might not sound like a huge amount on its own, but when you add it to everything else households are paying, those increases start to add up.

For an amortizing mortgage, the actual payment impact will depend on the remaining balance, amortization, interest rate, payment frequency, and mortgage structure.

My Take on This Week’s Announcement

I understand the Bank of Canada’s concern about inflation, and I agree that keeping inflation under control is important.

But I also believe we need to recognize that some of the pressures facing Canadians are coming from outside our borders. Energy costs, global conflict, tariffs, and trade uncertainty are not problems that can be solved simply by increasing interest rates.

At the same time, the Bank has to consider the risk that these price increases spread into the broader economy and become more persistent. That is what makes this decision complicated.

I am not suggesting that interest rates should automatically be coming down, or that the Bank should ignore inflation. I simply question whether raising rates immediately, rather than waiting for additional information from the federal budget, was necessary.

The next few months should give us a better indication of where inflation, economic growth, and interest rates are heading.

Whether you are purchasing, renewing, refinancing, or carrying a variable rate mortgage, it is worth reviewing your options and understanding how different interest rate scenarios could affect your finances.

Sometimes the lowest advertised rate is not necessarily the best mortgage strategy. The right mortgage should fit your needs today while giving you the flexibility to deal with whatever comes next.

This article is for general informational purposes only and does not constitute financial, legal, tax, or mortgage advice. Mortgage rates, lender policies, qualification standards, and individual circumstances vary. Speak with a qualified professional before making financial decisions.