Expectations are mounting that the Bank of Canada will raise its key interest rate next week, breaking from a long stretch of holds as policymakers grapple with persistently high inflation tied to energy prices.
The central bank has not raised rates since July 2023, and its policy rate has sat at 2.25 per cent since a quarter-point cut in October 2025. While an eighth consecutive hold had widely been predicted for the Oct. 28 announcement, a growing number of economists and traders now believe a hike is more likely.
Bank of Canada Governor Tiff Macklem recently said the central bank may need to raise borrowing costs if energy prices stay elevated, noting there is “no resolution in sight for the conflict in the Middle East,” which has disrupted global energy markets for months. Statistics Canada’s latest inflation data, released Monday, highlighted rising fuel costs, though the report found those costs have not yet significantly spread into other parts of the economy. A separate Bank of Canada survey released the same day found businesses are preparing for higher prices ahead.
Shifting Market Expectations
According to Bloomberg data, traders in the overnight swap market now place the odds of a 25-basis-point hike at 87 per cent, up from 70 per cent earlier in the week. The Bank of Montreal, RBC Dominion Securities and Desjardins Group all changed their forecasts this week from a hold to a hike, even though the consensus in a recent Bloomberg survey still points toward a hold.
Derek Holt, head of capital markets economics at Scotiabank, said in a research note that while a hike “is not a slam dunk call,” there is “probably enough supporting evidence” for one. Macquarie Group economist David Doyle said his firm’s baseline case remains a rate hike this month, predicting a steady hiking cycle that could see the policy rate rise by 125 basis points by the end of 2027. Leah Zlatkin, a licensed mortgage broker and expert commentator with LowestRates.ca, said that if a hike happens, she expects it to mark the start of a cycle rather than a single move.
Potential Fallout for Real Estate
Mortgage and debt experts say a rate increase would have significant consequences for Canada’s real estate market. Payments on variable-rate mortgages would rise immediately, along with rates on new fixed mortgages, while the pool of eligible buyers would shrink, shifting negotiating power toward buyers who can still qualify for financing. Home prices could decline further as a result.
Scott Terrio, manager of consumer insolvency at Hoyes Michalos & Associates, said the housing market is “kind of on its knees right now,” comparing a rate hike to “tossing a drowning guy an anchor,” and said the impact would “reverberate massively.”
Ben Rabidoux of Edge Realty Analytics said the volume of home sales across the country is currently at a 25-year low, and described buyer confidence as “unbelievably weak” due to factors including the Canada-U.S. trade war and the impact of artificial intelligence on jobs. He noted that per-capita home sales have already fallen back to levels last seen during the recessionary 1990s, and said a gradual drop in home prices over the next three to six months is “very plausible” if rates rise.
Forecasts Already Being Revised
Last week, the Canadian Real Estate Association downgraded its forecast for 2026 home sales for a third consecutive quarter, citing a “notably more hawkish tone from the Bank of Canada.” The association now expects 444,530 homes to be sold by year-end, a 5.2 per cent drop from 2025.
Zlatkin pointed to recent price declines in the Toronto-area market as a sign that now could be a good time to buy, saying that while prices could keep falling, buyers who qualify for a property today would likely still qualify if rates rise later.
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