The Bank of Canada has kept interest rates unchanged since July 2023. Despite expectations of another hold next week, a growing number of analysts and traders anticipate a rate increase to combat persistent inflation. The current policy rate has been steady at 2.25 per cent following a minor reduction in October 2025.
Bank of Canada Governor Tiff Macklem recently cautioned about the potential need for raising borrowing costs if energy prices remain high due to ongoing conflicts in the Middle East disrupting global energy markets. Latest inflation data from Statistics Canada highlighted surging energy costs, although the impact on other sectors remains limited. Businesses, as revealed in the Bank of Canada’s latest survey, are preparing for increased prices.
While a Bloomberg survey forecasts no change, several institutions, including Bank of Montreal, RBC Dominion Securities, and Desjardins Group, have shifted their predictions for a rate hike on October 28. Traders in the overnight swap market now indicate an 87 per cent probability of a 25-basis point rate hike by the Bank of Canada next week, up from 70 per cent earlier in the week.
Derek Holt, the head of capital markets economics at Scotiabank, supports a rate increase based on current evidence. Macquarie Group economist David Doyle also anticipates a series of rate hikes by the Bank of Canada, with a 125-basis point increase expected by the end of 2027. Mortgage expert Leah Zlatkin agrees that if a rate hike occurs, it could signal the beginning of a rate hike cycle.
Potential rate hikes could significantly impact the country’s real estate market, leading to immediate rises in mortgage payments and reduced buyer eligibility. Scott Terrio from Hoyes Michalos & Associates likened rising rates to adding weight to an already struggling housing market. Ben Rabidoux of Edge Realty Analytics noted a historic low in home sales volume, attributing buyer hesitancy to economic uncertainties such as trade tensions and AI’s impact on employment.
As interest rates rise, Rabidoux foresees a gradual decline in home prices over the coming months. The Canadian Real Estate Association recently downgraded its 2026 home sales forecast, citing a more hawkish stance from the Bank of Canada. Despite falling home prices in Toronto, Zlatkin sees it as an opportunity to buy, emphasizing that qualifying for a property now would likely still apply if rates increase in the future.