The Bank of Canada raised its policy rate to 2.5 per cent on Wednesday morning, delivering the first rate hike since the summer of 2023. The move was widely seen as a pre-emptive strike against inflation, which has been hovering around three per cent since the summer. “An increase in the policy rate is needed to reduce the risk that elevated energy prices could spill over and become generalized inflation,” was how BoC Governor Tiff Macklem defended the hike. There are, Macklem said, signs the economy is improving: consumer spending has been “solid” and business investment has “rebounded”. However, he cautioned that these hopeful signs are countered by several major factors dragging on the economy. The eight-month war in Iran, which shows no signs of letting up, has spiked energy prices, while the ongoing trade dispute with the U.S. continues to squeeze household budgets and weigh on economic growth. Higher borrowing rates are welcomed by those with fixed-rate savings (such as high-interest savings accounts or GICs). But they also increase the cost of borrowing,  put a damper on the housing market and stifle consumer spending. As far as a future strategy, Macklem signalled that there could be a need to raise interest rates again at the BoC’s next meeting on Dec. 9, but “given the uncertainties, we will proceed carefully.”  |  Lillian Suwanrumpha/AFP via Getty Images