The Bank of Canada and the federal government renewed the country’s monetary-policy framework for another five years Thursday, keeping the central bank’s inflation target at 2%.

The agreement extends the framework through 2031 and preserves the 2% midpoint of a 1% to 3% inflation-control range. Canada has used a formal inflation target since 1991, and the government and central bank review the arrangement every five years.

The framework keeps price stability as the primary objective of monetary policy while allowing the Bank of Canada to respond flexibly to economic shocks and support sustainable economic and labor-market outcomes. The central bank remains operationally independent in setting interest rates to pursue the agreed target.

The renewal comes during a period of elevated price pressure. Canada’s 2026 budget said consumer inflation had been running near 3% since April and was expected to rise to about 3.5% by year-end, largely because of higher energy costs and refinery margins. The Bank of Canada raised its policy rate by a quarter point to 2.5% on Oct. 28, its first increase since July 2023.

Governor Tiff Macklem told a Senate committee Thursday that inflation was expected to remain at or above 3% through much of 2027 before moving closer to the 2% target by mid-2028. He said additional rate increases could be needed but that officials would proceed carefully because of uncertainty.

The unchanged target gives households, businesses and financial markets continuity in how the Bank of Canada defines price stability. It does not predetermine the timing or size of future rate decisions, which the bank says will be made meeting by meeting.

Sources: Government of Canada — Budget 2026 economic and fiscal overview: https://budget.canada.ca/2026/report-rapport/overview-apercu-en.html Bank of Canada — Opening statement to the Senate banking committee: https://www.bankofcanada.ca/2026/11/opening-statement-standing-senate-committee-banking-commerce-and-economy-2026-11-05/ Reuters — Bank of Canada keeps 2% inflation target: https://www.reuters.com/world/americas/bank-canada-keeps-2-inflation-target-2026-11-05/