Bank of Canada officials say uncertainty doesn’t rule out hikes

By Erik Hertzberg

(Bloomberg) — Bank of Canada officials said that major uncertainties posed by higher oil prices and the ongoing trade war with the U.S. won’t necessarily keep them from hiking interest rates.

Policymakers led by Governor Tiff Macklem raised the policy rate to 2.5% last month, the first increase in over three years. A summary of deliberations from that meeting reiterated that officials agreed “there could be a need to increase the policy rate further.”

At the same time, officials flagged “considerable uncertainty” about economic headwinds and global developments impacting high oil prices, and how they would hit Canada’s economy, saying that while those conditions requires caution, they wouldn’t preclude action.

Governing council “recognized that uncertainty did not mean inaction, but they agreed they would need to proceed carefully to assess how economic developments would affect their outlook,” according to the minutes-like summary released Tuesday.

Policymakers had also considered holding borrowing costs steady in October, as Macklem had noted when he spoke to reporters last month. Governing council said that the increase in inflation was concentrated in energy prices, and core inflation measures were still near the 2% target.

But the main argument for the hike, which ultimately came to pass, was persistently elevated oil prices from the conflict in the Middle East, which the council said were “expected to remain higher for longer.”

“The combination of higher energy prices and pass-through had increased the risk of persistent, broad-based inflation. And with the economy expected to be more resilient, there was less downward pressures on prices to offset these cost pressures,” they said.

The deliberations say members “shared a diversity of views on the likely speed and extent of pass-through,” but agreed that the “energy shock alone would keep CPI inflation at around 3% for more than a year.”

There was also discussion about the country’s labour market, which unexpectedly loosened last month, according to Statistics Canada data released last week.

While council agreed the job market was soft, “some members believed the labour market was stronger than the headline numbers indicated, given strength in private sector job creation.”

They also agreed that while there was still slack in the economy, the recent pickup in growth would “gradually absorb excess supply.”

Combined, the bank said “the risks had shifted: the prolonged energy shock and a resilient economy meant the risk that high inflation could persist and become broad-based had increased.”

The Bank of Canada next sets borrowing costs Dec. 9. Traders in overnight swaps put the odds of a hike at that meeting at about a coin flip.

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Last modified: November 10, 2026