On October 28, 2026, the Bank of Canada raised its policy rate by 0.25%, marking the first hike since July 2023. The central bank held the benchmark steady at 2.25% for seven consecutive meetings before sounding the alarm. Inflation spiked to 3.1% in September 2026, sending policymakers on high alert.
During the post-meeting press conference on Wednesday, Bank of Canada Governor Tiff Macklem explained the monetary policy decision. He cited the Middle East oil shock and unresolved Canada-US trade relations as major reasons for the upward rate adjustment to 2.5%. Macklem is increasingly worried about inflation risks.
In response, TSX declined modestly by 0.04% the day after and remains up 14.3% year-to-date. However, if more rate hikes are on the horizon, investor sentiment could shift. They could rotate from rate-sensitive sectors and speculative growth stocks into lower-risk investments. Energy, for one, continues to benefit directly from surging oil prices. Banks could see higher margins on loans and mortgages.
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Peace of mind
Royal Bank of Canada (TSX: RY) will hold up regardless of the economic environment. The $396.5 billion bank is the largest TSX company by market capitalization. Its scale and diversified business model provide peace of mind, not to mention the 156-year dividend track record.
President and CEO David McKay said Royal Bank of Canada continues to raise the bar globally to deliver exceptional, record results. In Q3 fiscal 2026, net income rose 11% to a record $6 billion versus Q3 fiscal 2025. For the nine months ended July 31, 2026, provision for credit losses (PCL) fell 10.5% year-over-year to $3 billion.
RY trades at $288.21 per share (+26.4% year-to-date) and pays a 2.5% dividend. Look beyond the price, as you’d be investing in a bedrock of stability and an anchor stock. The banking giant increased its prime rate by 25 basis points to 4.7% effective October 29, 2026. It will expand its net interest margin capacity
Long-term dividend income and capital growth
Canadian Natural Resources (TSX: CNQ) is a solid choice for long-term dividend income and capital growth. Notably, Macklem said rising inflation is energy-driven. This large-cap energy major boasts long-life, low-decline oil sands assets, allowing for consistent production increases. It also operates on exceptionally low break-even costs.
The $158.3 billion independent crude oil and natural gas producer reported strong quarterly results. In Q2 2026, it rose 83% to $4.5 billion from $2.5 billion in Q2 2025. Total production increased 18% year-over-year to a record 1,249,000 barrels per day. Year-to-date (first six months), direct returns to shareholders totalled about $5.7 billion, of which $3.8 billion was paid as dividends and $1.9 billion was returned through share repurchases.
Regarding dividend growth, CNQ has raised dividends for 26 consecutive years. At $77.05 per share, current investors enjoy a 70.5% year-to-date gain and receive a 3.3% annual dividend (paid quarterly). In the current environment, the company generates significant free cash flow while advancing its strategic priorities.
So far, heading into the last two months of the year, the energy sector is up 61.6%, while financial services is up 22.7%.
No worries – build a core foundation
A higher-for-longer rate environment looms large as the Bank of Canada acts to contain rising inflation. Sadly, some sectors are far more vulnerable to rate hikes than others. However, investing in proven anchors like Royal Bank of Canada and Canadian Natural Resources can calm your fears.
