The Bank of Canada has maintained the same interest rate level since July 2023. Although the expectation for the upcoming week is another hold on rates for the eighth consecutive time, there is a growing sentiment among economists and traders that the central bank might increase its trend-setting rate to address persistent inflationary pressures. The current policy rate has remained steady at 2.25% following a quarter-point reduction in October 2025.
In a recent statement, Bank of Canada Governor Tiff Macklem indicated a potential need to raise borrowing costs if energy prices continue to rise. He highlighted the ongoing conflict in the Middle East as a factor contributing to elevated energy prices. The latest inflation data released by Statistics Canada on Monday emphasized the significant impact of surging energy costs, although there has been limited spillover into other sectors of the economy. However, a recent survey by the Bank of Canada revealed that businesses are preparing for higher prices.
While the consensus in a recent Bloomberg survey leans towards maintaining the current rate, several major financial institutions, including the Bank of Montreal, RBC Dominion Securities, and Desjardins Group, have revised their forecasts from a hold to a potential rate hike on October 28. Traders in the overnight swap market now indicate an 87% probability of a 25-basis point rate increase by the Bank of Canada, up from 70% earlier in the week.
Economists such as Derek Holt from Scotiabank and David Doyle from Macquarie Group are advocating for a rate hike, citing supportive evidence for such a move. Doyle predicts a total increase of 125 basis points in the Bank of Canada’s policy rate by the end of 2027. Mortgage broker Leah Zlatkin also anticipates a rate hike and suggests that it could signal the beginning of a cycle of rate increases.
The potential rate hike could have a substantial impact on the real estate market, according to experts in the mortgage and debt industry. Variable-rate mortgage payments would rise immediately, along with rates for new fixed mortgages. The pool of eligible buyers may shrink, giving more leverage to those who qualify for financing. Consequently, home prices could experience a decline.
Industry experts express concerns about the current state of the real estate market, with home sales at a 25-year low and buyer confidence weakened by various economic uncertainties, including the Canada-U.S. trade war and the influence of AI on employment. If interest rates rise, it is plausible that home prices could gradually decrease over the coming months, potentially affecting sales activity. The recent downward revision of the 2026 home sales forecast by the Canadian Real Estate Association reflects a more cautious outlook due to the perceived hawkish stance of the Bank of Canada.
Recent declines in home prices in regions like Toronto have prompted discussions about the opportune timing for prospective buyers. Despite the possibility of further price reductions, mortgage experts suggest that qualifying for a property now could provide resilience against future rate hikes.
Overall, the potential rate hike by the Bank of Canada may have far-reaching implications for the economy, particularly in the real estate sector, where existing challenges could be exacerbated by higher borrowing costs.