The Bank of Canada has maintained its current interest rates since July 2023. While it is widely expected that rates will remain unchanged next week for the eighth consecutive time, there is a growing sentiment among economists and traders that the central bank might increase its trend-setting rate in order to combat persistent inflation.
The policy rate has been steady at 2.25 per cent following a quarter-point reduction in October 2025. Bank of Canada Governor Tiff Macklem has indicated the possibility of raising borrowing costs if energy prices continue to stay high due to ongoing conflicts in the Middle East disrupting global energy markets.
Recent inflation data from Statistics Canada highlighted the significant rise in energy costs, but the impact on other sectors of the economy remains limited for now. However, a survey by the Bank of Canada revealed that businesses are preparing for increased prices in the near future.
Although a Bloomberg survey indicates the general expectation for rates to remain steady, several key financial institutions, including the Bank of Montreal, RBC Dominion Securities, and Desjardins Group, have shifted their predictions from a hold to a rate hike for the upcoming meeting on Oct. 28. Traders in the overnight swap market have also increased the odds of a 25-basis point rate hike to 87 per cent.
Derek Holt, Scotiabank’s head of capital markets economics, is advocating for a rate hike, citing sufficient supporting evidence for the move. Macquarie Group economist David Doyle also forecasts a 125 basis point increase in the Bank of Canada’s policy rate by the end of 2027.
Leah Zlatkin, a licensed mortgage broker and expert commentator, concurs with the expectation of a rate hike, foreseeing it as the beginning of a cycle of rate increases.
The potential rise in interest rates is anticipated to have a significant impact on Canada’s real estate market, with experts warning that variable-rate mortgage payments and new fixed mortgage rates would escalate. This could reduce the pool of eligible buyers, leading to a shift in power from sellers to those capable of securing financing for home purchases, potentially causing a decline in home prices.
Industry observers note that the current volume of home sales is at a 25-year low, with weak buyer confidence due to various economic uncertainties, including the Canada-U.S. trade war and the effects of AI on employment. If interest rates climb, a gradual decrease in home prices within the next few months is deemed likely.
Recent forecasts from the Canadian Real Estate Association indicate a lowered expectation for home sales activity in 2026, attributing the adjustment to the Bank of Canada’s hawkish stance. Home prices have already declined in the Toronto area, prompting suggestions that it could be an opportune time to buy despite the possibility of further price reductions in the future.