The Bank of Canada has maintained its interest rates at the same level since July 2023. However, there is growing speculation that the central bank might raise its trend-setting rate in order to address persistent inflation issues. The current policy rate has been steady at 2.25 per cent since October 2025 when there was a quarter-point reduction.
Bank of Canada Governor Tiff Macklem recently hinted at a potential need to increase borrowing costs if energy prices continue to remain high due to ongoing conflicts in the Middle East. The latest inflation data from Statistics Canada highlighted the impact of rising fuel prices, although this has not yet significantly affected other sectors of the economy. Nevertheless, a survey by the Bank of Canada revealed that businesses are preparing for higher prices.
While a Bloomberg survey indicates a general expectation for the interest rates to remain unchanged, some major financial institutions like the Bank of Montreal, RBC Dominion Securities, and Desjardins Group have shifted their forecasts from a hold to a potential hike at the upcoming meeting on October 28. Traders in the overnight swap market are now indicating 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 this week.
Economists such as Derek Holt from Scotiabank and David Doyle from Macquarie Group are advocating for a rate hike, citing supporting evidence for such a move. They foresee a gradual increase in the policy rate over the coming months. Mortgage experts also anticipate significant repercussions on the real estate market if interest rates rise, with potential impacts on mortgage payments and the pool of eligible buyers. The Canadian Real Estate Association has already revised its forecast for home sales activity in 2026, anticipating a decline amid a more assertive stance from the Bank of Canada.