The Bank of Canada has maintained its interest rates since July 2023.
While an eighth consecutive pause is largely anticipated for next week, an increasing number of economists and traders now foresee the central bank raising its benchmark rate to alleviate persistent inflation.
The policy rate remains unchanged at 2.25 percent following a quarter-point reduction in October 2025.
However, Bank of Canada Governor Tiff Macklem recently indicated that borrowing costs might need to rise if energy prices stay high. On Saturday, he mentioned that there is “no resolution in sight for the conflict in the Middle East,” which has disrupted global energy markets for several months.
On Monday, the latest inflation report from Statistics Canada highlighted escalating energy prices. The findings revealed that increasing fuel costs have not yet significantly affected other areas of the economy. Nevertheless, the Bank of Canada’s recent survey, also published on Monday, indicated that businesses are preparing for rising prices.
The prevailing view in a recent Bloomberg survey suggests a hold; however, this week, the Bank of Montreal, RBC Dominion Securities, and Desjardins Group have changed their forecasts for October 28 from a hold to a hike.
Bloomberg data shows that traders in the overnight swap market currently believe there is an 87 percent chance of a 25-basis point increase from the Bank of Canada next week, a rise from 70 percent earlier this week. The swap market data reflects the difference between current interest rates and the future rates traders are predicting.
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Derek Holt, the head of capital markets economics at Scotiabank, is among those advocating for a rate increase.
“It’s not a guaranteed outcome, but there is likely sufficient supporting evidence for a hike,” he mentioned in a research note on Monday.
Macquarie Group economist David Doyle concurs, predicting that the Bank of Canada will increase its policy rate by 125 basis points by the end of 2027.
“Our main scenario still anticipates a rate hike at this month’s meeting,” he stated in a note to clients on Monday. “We expect a steady rate hike cycle ahead.”
Leah Zlatkin, a licensed mortgage broker and an expert commentator with LowestRates.ca, shares this view.
“If a hike occurs, I believe it will initiate a cycle,” Zlatkin remarked.
Canada’s economy has shown resilience in the face of punishing U.S. tariffs, but new import bans on a range of Canadian products are creating further drag. Accounting firm Deloitte has lowered its growth forecast for next year by 20 per cent.
‘Massive’ impact on real estate
Rising rates would greatly affect the country’s struggling real estate sector, according to experts in mortgages and debt. Payments on variable-rate mortgages would increase immediately, and rates for new fixed mortgages could also rise if bond market investors anticipate further rate hikes. This would reduce the number of eligible buyers, shifting leverage from sellers to those who qualify for the necessary financing. Home prices may decline further.
“The housing market is currently in a precarious state, and increasing rates is akin to throwing an anchor to a drowning man,” stated Scott Terrio, a consumer insolvency manager at Ontario-based Hoyes Michalos & Associates.
He noted that a hike “would have a huge impact.”
According to Ben Rabidoux from Ontario-based Edge Realty Analytics, the overall number of home sales in the country is at a 25-year low.
He characterized current buyer confidence as “incredibly weak,” attributing it to various economic uncertainties, including the Canada-U.S. trade conflict and the impact of AI on employment.
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“The reality is that per capita home sales have already returned to levels we saw in the 1990s, a period marked by a severe recession,” he remarked.
If interest rates begin to rise, Rabidoux predicts a gradual decline in home prices “over the next three to six months is very likely.”
Last week, the Canadian Real Estate Association revised its 2026 sales forecast downward for the third consecutive quarter.
The industry association cited a “notably more hawkish tone from the Bank of Canada,” projecting that 444,530 homes will be sold by the end of the year, representing a 5.2 percent decrease from 2025.
Home prices have recently dropped in the notoriously high-priced Toronto region, which Zlatkin, the mortgage broker, points to as evidence that now is a “good time to buy.”
“There is a chance that housing prices will continue to decline, but the truth is, if you qualify for the property today, you will also qualify later on if rates increase.”
