The Bank of Canada has kept interest rates unchanged since July 2023. Although an eighth consecutive hold is expected next week, there is a growing sentiment among economists and traders that the central bank may increase its trend-setting rate to combat persistent inflation. The policy rate has remained at 2.25 per cent since a quarter-point reduction in October 2025.
Bank of Canada Governor Tiff Macklem recently cautioned that there might be a need to raise borrowing costs if energy prices continue to rise. He noted the ongoing conflict in the Middle East, which has disrupted global energy markets. Latest inflation data from Statistics Canada highlighted surging energy expenses, with fuel prices showing an increase that has not yet significantly impacted other sectors. However, a recent survey by the Bank of Canada revealed that businesses are preparing for higher prices.
While a Bloomberg survey indicates a consensus for a rate hold, some major financial institutions, including the Bank of Montreal, RBC Dominion Securities, and Desjardins Group, have revised their predictions from a hold to a rate hike on Oct. 28. Traders in the overnight swap market now suggest an 87 percent probability of a 25-basis point rate hike by the Bank of Canada next week, up from 70 percent earlier in the week.
Derek Holt, head of capital markets economics at Scotiabank, is advocating for a rate hike, citing supporting evidence for the move. Macquarie Group economist David Doyle also anticipates a series of rate hikes, with a projected 125 basis points increase by the end of 2027. Leah Zlatkin, a licensed mortgage broker, concurs, suggesting that if a hike occurs, it is likely to be part of a cycle.
The potential rate hike is expected to have a significant impact on the real estate market, affecting variable-rate mortgages, new fixed mortgage rates, buyer eligibility, and property prices. Experts warn that rising rates could exacerbate the challenges faced by the real estate sector, which is already experiencing a downturn. The Canadian Real Estate Association recently downgraded its 2026 home sales forecast due to the Bank of Canada’s hawkish stance, predicting a 5.2 percent decline in home sales compared to the previous year.
Experts caution that home prices could continue to decline, making it a favorable time for prospective buyers. However, they stress the importance of financial qualification in light of potential rate hikes. They point to recent drops in home prices in the Toronto area as an indicator of the market conditions.