The Bank of Canada has kept interest rates unchanged since July 2023. While it is widely anticipated that rates will remain steady next week for the eighth consecutive time, there is a growing expectation among economists and traders that the central bank may raise its trend-setting rate to combat persistent inflation. The current policy rate has been at 2.25 percent since a quarter-point reduction in October 2025.
Bank of Canada Governor Tiff Macklem has indicated the possibility of increasing borrowing costs if energy prices stay high. He highlighted the ongoing conflict in the Middle East as a factor contributing to elevated energy markets. Recent data from Statistics Canada revealed a notable increase in fuel prices, although this has yet to significantly impact other sectors of the economy. However, a survey by the Bank of Canada released on the same day showed that businesses are preparing for higher prices.
Although a Bloomberg survey indicates an expectation for rates to remain unchanged, some institutions like the Bank of Montreal, RBC Dominion Securities, and Desjardins Group have shifted their forecasts from a hold to a rate hike for October 28. Traders in the overnight swap market are now pricing in an 87 percent probability of a 25-basis point rate increase by the Bank of Canada next week, up from 70 percent earlier in the week.
Derek Holt, Scotiabank’s head of capital markets economics, is advocating for a rate hike, citing supporting evidence for such a move. Macquarie Group economist David Doyle is also in agreement, forecasting a cumulative 125 basis points increase in the Bank of Canada’s policy rate by the end of 2027.
Leah Zlatkin, a licensed mortgage broker, concurs with the potential for a rate hike, suggesting it could mark the start of a rate hike cycle. The prospect of rising rates could have a substantial impact on the real estate market, affecting variable and fixed mortgage rates, buyer eligibility, and potentially leading to a decrease in home prices.
Experts warn that a rate hike could worsen the current state of the real estate market, which is already experiencing low sales volume. Economic uncertainties, such as the Canada-U.S. trade war and the impact of AI on jobs, contribute to weak buyer confidence. The Canadian Real Estate Association has revised its 2026 home sales forecast downwards, attributing the adjustment to a more hawkish stance from the Bank of Canada. This shift is expected to result in a 5.2 percent decrease in home sales compared to the previous year.
Recent drops in home prices in regions like Toronto are seen as opportunities for buyers by experts like Zlatkin. While there is a possibility of further price declines, qualifying for a property now may provide stability even if rates rise in the future.