The Bank of Canada has kept interest rates unchanged since July 2023. While it is widely expected to maintain this trend next week, there is a growing sentiment among economists and traders that the central bank may increase its trend-setting rate to address persistent inflation. The policy rate has remained at 2.25 per cent since a reduction of a quarter-point in October 2025.
Bank of Canada Governor Tiff Macklem recently cautioned about the potential need to raise borrowing costs if energy prices stay high, highlighting the ongoing turmoil in the Middle East affecting global energy markets. The latest inflation data released by Statistics Canada on Monday emphasized the surge in energy costs, although the impact on other sectors of the economy remains limited. However, a new survey from the Bank of Canada revealed that businesses are preparing for higher prices.
Although a recent Bloomberg survey indicates the likelihood of a rate hold, some major institutions, including the Bank of Montreal, RBC Dominion Securities, and Desjardins Group, have revised their forecasts from a hold to a rate hike for October 28. Traders in the overnight swap market now estimate an 87% probability of a 25-basis point rate increase 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 based on supporting evidence. Macquarie Group economist David Doyle also predicts a 125-basis point increase in the Bank of Canada’s policy rate by the end of 2027, foreseeing a consistent rate hike cycle ahead.
Leah Zlatkin, a licensed mortgage broker and expert commentator at LowestRates.ca, concurs with the potential for a rate hike, suggesting it could signal the start of a rate adjustment cycle.
It is anticipated that higher interest rates could significantly impact the struggling real estate market in the country, as noted by mortgage and debt experts. Variable-rate mortgage payments and new fixed mortgage rates would immediately rise, leading to a decrease in the pool of eligible buyers and potentially lowering home prices.
The Canadian Real Estate Association recently downgraded its 2026 home sales forecast, citing a more hawkish stance from the Bank of Canada. This adjustment reflects a 5.2% decline in projected home sales compared to the previous year. Recent drops in home prices in the Toronto area have prompted experts to consider it a favorable time to buy, anticipating a potential further decline in housing prices in the coming months.
The prevailing economic uncertainties, including the Canada-U.S. trade war and the impact of AI on employment, have contributed to weak buyer confidence and a decline in home sales across the country. Industry experts warn that rising interest rates could exacerbate these challenges, potentially leading to a gradual decline in home prices in the near future.