The Bank of Canada has maintained its interest rates at the same level since July 2023. There is a widespread expectation of another hold next week, but an increasing number of economists and traders anticipate a rate hike to address persistent inflation concerns. The current policy rate has been steady at 2.25 per cent since a reduction in October 2025.
Bank of Canada Governor Tiff Macklem has cautioned about the potential need to raise borrowing costs if energy prices remain high, noting the ongoing conflict in the Middle East impacting global energy markets. Recent inflation data from Statistics Canada highlighted the surge in energy costs, although the spillover effect on other sectors remains limited. However, a Bank of Canada survey revealed that businesses are preparing for higher prices.
While a recent Bloomberg survey indicates a consensus for no rate change, several major institutions, including Bank of Montreal, RBC Dominion Securities, and Desjardins Group, have shifted their forecasts from a hold to a rate increase on October 28. Traders in the overnight swap market now indicate an 87 percent probability of a 25-basis point rate hike by the Bank of Canada next week, up from 70 percent earlier in the week.
Derek Holt, the head of capital markets economics at Scotiabank, is advocating for a rate hike based on supporting evidence. Macquarie Group economist David Doyle also predicts multiple rate hikes by the Bank of Canada in the coming years.
The potential rate hike could have a substantial impact on the real estate market, affecting mortgage rates and buyer eligibility. Industry experts warn that rising rates could further dampen the already struggling housing market, leading to a decrease in home prices. The current low volume of home sales nationwide, coupled with economic uncertainties such as trade disputes and technological advancements like AI, contribute to weak buyer confidence.
Analysts foresee a possible gradual decline in home prices if interest rates rise, with recent data showing a decrease in home sales forecasts for 2026. Despite the challenges, some experts believe this could present an opportunity for buyers as housing prices may continue to fall.