The Bank of Canada has maintained its current interest rates since July 2023. Despite the expectation of another hold next week, there is a growing sentiment among economists and traders that the central bank may raise its trend-setting rate to address persistent inflation concerns. The policy rate has remained unchanged at 2.25% following a slight cut in October 2025.
Bank of Canada Governor Tiff Macklem has indicated the possibility of increasing borrowing costs if energy prices stay high due to ongoing conflicts in the Middle East affecting global energy markets. Recent inflation data from Statistics Canada highlighted the significant impact of rising fuel prices, although this increase has not yet spread substantially to other sectors of the economy. Nevertheless, a survey by the Bank of Canada revealed that businesses are preparing for elevated prices.
While a majority of experts in a recent Bloomberg survey anticipate a rate hold, notable institutions like 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 October 28. Traders in the overnight swap market now place an 87% probability on a 25-basis point rate increase by the Bank of Canada, up from 70% earlier in the week, based on Bloomberg data.
Derek Holt, Scotiabank’s head of capital markets economics, and Macquarie Group economist David Doyle both support the likelihood of a rate hike. Holt mentioned that while it’s not a definite decision, there is substantial evidence to support an increase. Doyle forecasts a cumulative 125 basis points rate hike by the end of 2027 and expects a steady cycle of rate increases.
Leah Zlatkin, a licensed mortgage broker, also believes in a potential rate hike cycle if initiated. She acknowledges the significant impact such a move would have on the real estate market, particularly on mortgage payments and buyer eligibility. Market experts warn that rising rates could further dampen home sales, as evidenced by the current low sales volume and weakened buyer confidence amid economic uncertainties.
The Canadian Real Estate Association recently revised its forecast for 2026 home sales downwards, attributing the adjustment to a more hawkish stance from the Bank of Canada. The industry group projects a 5.2% decline in home sales compared to the previous year. Despite the challenges posed by rising rates, Zlatkin suggests that falling home prices, such as in the Toronto area, may present buying opportunities for qualified buyers, even in a potentially declining market scenario.
Experts caution that a gradual decline in home prices over the coming months is plausible if interest rates rise, further impacting the real estate sector. The overall sentiment is that the housing market, already under pressure, may face additional challenges if borrowing costs increase as anticipated.