The Bank of Canada has maintained its interest rates at the same level since July 2023. While it is widely expected that the bank will 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 trend-setting rate to address persistent inflation.
The current policy rate has been unchanged at 2.25 percent following a reduction of a quarter-point in October 2025. Bank of Canada Governor Tiff Macklem recently cautioned about the possibility of raising borrowing costs if energy prices remain high, citing ongoing turmoil in the Middle East impacting global energy markets.
The most recent inflation data from Statistics Canada, released on Monday, highlighted the surge in energy costs. The report indicated that the increase in fuel prices has not significantly spilled over into other sectors of the economy yet. However, a survey by the Bank of Canada revealed that businesses are preparing for higher prices.
Although a Bloomberg survey indicates a likelihood of the central bank maintaining rates, several financial institutions, including Bank of Montreal, RBC Dominion Securities, and Desjardins Group, have shifted their predictions from no change to an interest rate hike on October 28. Traders in the overnight swap market are now placing an 87 percent probability on 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, citing sufficient supporting evidence. Macquarie Group economist David Doyle also foresees a series of rate hikes, predicting a 125-basis point increase in the Bank of Canada’s policy rate by the end of 2027.
Leah Zlatkin, a licensed mortgage broker, echoes the sentiment, suggesting that if there is a rate hike, it could mark the beginning of an interest rate cycle.
An increase in interest rates would have significant implications on the struggling real estate market in the country, according to mortgage and debt experts. Payments on variable-rate mortgages would rise immediately, affecting rates for new fixed mortgages as well. The pool of potential buyers would shrink, shifting the balance of power from sellers to those who qualify for financing. This could potentially lead to a decline in home prices.
Ben Rabidoux of Edge Realty Analytics noted that the volume of home sales in Canada is currently at a 25-year low, with buyer confidence being notably weak due to various economic uncertainties, including the Canada-U.S. trade war and the impact of AI on jobs.
If interest rates begin to rise, Rabidoux anticipates a gradual decrease in home prices over the next few months. The Canadian Real Estate Association recently downgraded its 2026 home sales forecast for the third consecutive quarter, attributing it to a more hawkish stance from the Bank of Canada. Home prices in the Toronto area have already declined, prompting some experts to suggest that it may be a favorable time to consider purchasing a property, even with the potential for further price drops in the future.
