The Bank of Canada has maintained its current interest rates since July 2023. Although it is widely expected to keep rates steady next week for the eighth consecutive time, there is a growing sentiment among economists and traders that the central bank may increase its benchmark rate to address persistent inflation.
The policy rate has remained at 2.25% following a 0.25% reduction in October 2025. Bank of Canada Governor Tiff Macklem recently indicated a potential need to raise borrowing costs if energy prices continue to rise. He noted the ongoing conflict in the Middle East as a factor contributing to elevated energy markets globally.
Recent inflation data released by Statistics Canada highlighted a surge in energy costs, with fuel prices showing an increase that has yet to substantially impact other sectors of the economy. However, a survey by the Bank of Canada revealed that businesses are anticipating higher prices in the near future.
While a Bloomberg survey suggests a consensus for maintaining rates, several institutions, including Bank of Montreal, RBC Dominion Securities, and Desjardins Group, have revised their forecasts from a hold to a rate hike on October 28. Traders in the overnight swap market are now indicating an 87% probability of a 25-basis point rate hike by the Bank of Canada next week, up from 70% earlier in the week.
Derek Holt, Scotiabank’s head of capital markets economics, is advocating for a rate hike, citing sufficient supporting evidence. Macquarie Group economist David Doyle also predicts a cumulative 125 basis point increase in the Bank of Canada’s policy rate by the end of 2027.
Leah Zlatkin, a licensed mortgage broker and analyst at LowestRates.ca, echoes the sentiment, suggesting that if a rate hike occurs, it could mark the beginning of a series of increases. The potential rise in interest rates is expected to have a substantial impact on the real estate market, affecting mortgage payments and buyer eligibility, potentially leading to a decline in home prices.
Ben Rabidoux of Edge Realty Analytics notes that the current volume of home sales in Canada is at a 25-year low, attributing weak buyer confidence to various economic uncertainties, including the Canada-U.S. trade war and the influence of AI on employment. He anticipates a possible gradual decrease in home prices over the next few months if interest rates rise.
The Canadian Real Estate Association recently revised its forecast for 2026 home sales, citing a more hawkish stance from the Bank of Canada. As a result, the industry group projects a 5.2% decrease in home sales compared to the previous year. Recent drops in home prices in the Toronto area are seen as an opportunity by some experts, suggesting that now might be a favorable time to consider buying property.