Bank of Canada raises interest rates for the first time in over three years, with further rate hikes likely ahead.

The Bank of Canada raised its benchmark interest rate by 25 basis points to 2.50% on Wednesday. The central bank projects inflation will remain well above its 2% target level through 2028. Bank of Canada Governor Tiff Macklem said further policy rate hikes may be necessary to curb inflation, though officials pledged to proceed with policy adjustments cautiously. In a prepared statement, Macklem noted: "Raising the policy rate is necessary to reduce the risk that the impact of high energy prices will spread and eventually become entrenched broad-based inflation." He also pointed out that "current uncertainty remains elevated" amid U.S.-Canada trade disputes and Middle East conflicts, with the central bank remaining vigilant. Additionally, the Bank of Canada upgraded its economic growth forecast, driven mainly by strong consumer spending and export performance, as well as a projected rebound in business investment. Business investment is expected to increase further as companies increasingly adopt artificial intelligence and leverage new tax incentives introduced by Prime Minister Carney.