The Bank of Canada has maintained its interest rates since July 2023. While an eighth consecutive hold is expected next week, there is a growing belief among economists and traders that the central bank may increase its trend-setting rate to address persistent inflation. The policy rate has been at 2.25 per cent since a quarter-point reduction in October 2025.
Bank of Canada Governor Tiff Macklem has cautioned that if energy prices stay high, there may be a need to raise borrowing costs. He mentioned the ongoing conflict in the Middle East as a factor contributing to the turmoil in global energy markets. Recent inflation data from Statistics Canada highlighted the surge in energy costs, with fuel prices rising but not yet significantly impacting other economic sectors. However, a Bank of Canada survey revealed that businesses are preparing for higher prices.
Although the consensus in a recent Bloomberg survey leans towards maintaining the rate, some major institutions like Bank of Montreal, RBC Dominion Securities, and Desjardins Group have shifted their predictions from a hold to a rate hike for October 28. Traders in the overnight swap market now indicate an 87 per cent probability of a 25-basis point rate increase by the Bank of Canada next week, up from 70 per cent earlier in the week.
Derek Holt, Scotiabank’s head of capital markets economics, is advocating for a rate hike based on supporting evidence. Macquarie Group economist David Doyle also forecasts a 125-basis point increase in the Bank of Canada’s policy rate by the end of 2027, expecting a steady cycle of rate hikes.
Experts anticipate that a rate hike would have a significant impact on the country’s struggling real estate market. Higher rates would lead to immediate rises in payments for variable-rate mortgages and new fixed mortgages, reducing the pool of eligible buyers and potentially lowering home prices. Concerns about economic uncertainties, such as the Canada-U.S. trade war and the impact of AI on jobs, have weakened buyer confidence, contributing to a 25-year low in home sales across Canada.
If interest rates rise, gradual declines in home prices over the next few months are seen as likely. Recent data from the Canadian Real Estate Association revealed a downgrade in the forecast for 2026 home sales activity, citing a more hawkish stance from the Bank of Canada. Despite falling home prices in the Toronto area, experts suggest that now could be a good time to buy, as qualifying for a property today may still be possible if rates increase in the future.