The Bank of Canada has maintained its interest rates at the same level since July 2023. While it is widely expected that the central bank will keep rates steady next week for the eighth time, there is a growing sentiment among economists and traders that an increase may be on the horizon to combat persistent inflation. The current policy rate has been static at 2.25 percent following a quarter-point reduction in October 2025.
Bank of Canada Governor Tiff Macklem has cautioned that there might be a need to raise borrowing costs if energy prices remain high, highlighting the ongoing conflict in the Middle East as a factor contributing to elevated global energy markets. The recent inflation data from Statistics Canada emphasized the surge in energy costs, with rising fuel prices yet to significantly impact other sectors of the economy. However, a new survey by the Bank of Canada revealed that businesses are preparing for higher prices.
Although a recent Bloomberg survey indicates expectations for interest rates to remain unchanged, some financial institutions like the Bank of Montreal, RBC Dominion Securities, and Desjardins Group have shifted their predictions from a hold to a rate hike for October 28. Traders in the overnight swap market now estimate an 87 percent chance of a 25-basis point rate hike by the Bank of Canada next week, up from 70 percent earlier in the week.
Economists such as Derek Holt from Scotiabank and David Doyle from Macquarie Group are advocating for a rate hike, with projections of a 125-basis point increase in the policy rate by the end of 2027. Mortgage experts foresee significant repercussions on the real estate market if interest rates rise, affecting mortgage payments and buyer eligibility, potentially leading to a decline in home prices.
The Canadian Real Estate Association has revised down its 2026 home sales forecast for the third consecutive quarter, citing a more hawkish stance from the Bank of Canada. The industry group anticipates a 5.2 percent decrease in home sales compared to the previous year. Recent price drops in the Toronto area have been noted, prompting some experts to suggest that it could be an opportune time to make a purchase. Despite the possibility of further price reductions, there is a belief that qualifying for a property now may mitigate future challenges if interest rates escalate.