CIBC Research reviews today's BoC October policy decision.

"The Bank of Canada raised its overnight rate by 25bp to 2.50% as widely expected today, as it looks to guard against the threat of elevated energy prices becoming a widespread inflationary problem. While the statement admitted that core measures of inflation remained close to 2% currently, it noted rising inflation expectations and producer prices as likely to drive an acceleration ahead, with the Bank's surveys suggesting greater passthrough of higher transportation costs is likely.  The Monetary Policy Report (MPR), utlilising the Bank's new economic model, showed a forecast for headline inflation to still be elevated at 2.6% at the end of 2027, even with the energy component being slightly negative by that time. However, the forecast for the output gap of between -1.25% and -0.25% shows that the Bank still believes that the economy is in excess supply, and the bank expects that new US tariffs will, at least temporarily, slow growth to 0.8% annualized in Q4," CIBC notes.

"As to what's ahead, the statement noted that there "could" be a need for further rate increases but that given continued economic uncertainty that they would "proceed carefully". We currently forecast that the Bank will hold in December before hiking once more in January," CIBC adds.