Ottawa —The Bank of Canada and the federal government on Thursday renewed the central bank’s monetary policy framework for another five years, keeping the 2 percent inflation target as the policy objective through December 31, 2031. The renewal, set out in a joint statement, comes eight days after the bank raised its policy rate by 25 basis points to 2.5 percent to stop an oil-driven rise in prices from spreading through the economy.
The agreement leaves the core terms of the regime in place. The previous renewal, in December 2021, ran for the five years to the end of 2026 and also aimed to keep total CPI inflation at the 2 percent midpoint of a 1 to 3 percent range, according to the Bank of Canada. Under the new agreement:
- The target remains 2 percent, the midpoint of the 1 percent to 3 percent control range, measured as the 12-month rate of change in the consumer price index.
- Policy will continue to be symmetric, with equal emphasis on deviations above and below the target.
- The bank will continue to use the framework’s flexibility to respond to economic shocks while focusing on returning inflation to target over time.
- The agreement runs to December 31, 2031.
The statement said monetary policy would keep a primary focus on low and well-anchored inflation while allowing flexibility in implementation to support economic growth and strong and stable labor market outcomes. It added that price stability supports maximum sustainable employment and economic growth.
A defense of the framework after the inflation surge
Much of the document reads as a review of the past five years. It said post-pandemic supply disruptions, rapid shifts in demand and geopolitical conflicts pushed inflation higher worldwide, that the bank acted forcefully, and that inflation returned to the 2 percent target and the control range. It acknowledged that high inflation eroded Canadians’ purchasing power and their sense of the fairness of the economic system.
“The Bank views the episode not as a failure of the framework’s design, but as a challenge to its implementation amid extraordinary global shocks.”
The statement said the bank has strengthened its analysis of how global and domestic supply shocks pass through to Canadian inflation, and how policy should respond when such shocks are larger and more persistent than normal. That question is now live. In its October 28 rate announcement, the bank said CPI inflation had been around 3 percent since April because of persistently high oil prices and was expected to rise to about 3.5 percent by the end of the year. Inflation excluding gasoline was 2.2 percent in September, and core measures remained close to 2 percent, but the bank said its surveys point to greater pass-through of costs over the next year. It projected inflation would average 3 percent in 2027 before returning to 2 percent in the middle of 2028, and said there could be a need to raise rates further.
Other central banks are tightening into the oil shock
Canada is not alone. The Bank of England raised Bank Rate by 25 basis points to 4 percent on Thursday, with eight of nine Monetary Policy Committee members voting for the 25 basis point increase and Catherine Mann preferring a 50 basis point rise. The BoE said UK CPI inflation rose to 3.5 percent in September and is expected to reach around 5 percent by the middle of next year, with the conflict in the Middle East now in its ninth month and global energy prices still rising.
Brent crude oil was at $98.91 a barrel at 4:48 p.m. Eastern time on Thursday, up 4.5 percent on the day, according to delayed market data. That is more than 50 percent above its level a year earlier, though below the $115.32 recorded on October 28.
Brent crude has risen by about half over the past year
Brent crude oil, US dollars per barrel, daily closes sampled roughly every two weeks, through Nov 4, 2026
Source: Market data via Economy & Markets data tools
For Canadian rates, the renewal removes one source of uncertainty: the target that the bank’s rate path is measured against will not change. The bank has also stated that longer-term inflation expectations remain well anchored, even as near-term expectations of households and businesses have risen.
What to watch
The Bank of Canada will publish a summary of the deliberations behind its October 28 decision on November 10. Its next rate announcement is due on December 9, and the next Monetary Policy Report on January 27, 2027. The Bank of England’s next decision is due on December 17.
