The Bank of Canada has maintained its interest rates since July 2023. While it is widely expected that rates will remain unchanged next week for the eighth consecutive time, an increasing number of economists and traders are now anticipating a rate hike to combat persistent inflation. The current policy rate has been steady at 2.25 percent following a quarter-point decrease in October 2025.
Bank of Canada Governor Tiff Macklem has cautioned that there may be a need to raise borrowing costs if energy prices continue to rise. Concerns about the ongoing conflict in the Middle East, which has disrupted global energy markets for several months, are contributing to this stance.
Recent inflation data from Statistics Canada highlighted surging energy costs. Although fuel prices have been increasing, the spillover effect into other sectors of the economy has been limited so far. However, a new survey from the Bank of Canada indicates that businesses are preparing for higher prices in the near future.
While a Bloomberg survey indicates an expectation for rates to remain unchanged, some major financial institutions, including 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 are now placing an 87 percent probability on a 25-basis point rate increase by the Bank of Canada next week, up from 70 percent earlier in the week.
Experts like Derek Holt from Scotiabank and David Doyle from Macquarie Group are forecasting a rate hike. They believe that current economic conditions support the need for an increase in the policy rate to combat inflation and maintain economic stability. Leah Zlatkin, a mortgage broker, also agrees that if a rate hike occurs, it could potentially mark the beginning of a rate hike cycle.
The expected rate hike could have a significant impact on the real estate market, according to mortgage and debt experts. Higher interest rates would lead to immediate increases in payments for variable-rate mortgages and new fixed mortgages. The pool of eligible buyers may shrink, transferring bargaining power to those who can secure financing. Consequently, home prices might see a decline.
The current state of the housing market is already weak, with home sales at a 25-year low across the country. Various economic uncertainties, such as the Canada-U.S. trade war and the impact of AI on jobs, have resulted in low buyer confidence. Analysts suggest that a gradual decline in home prices over the next few months is a plausible outcome if interest rates rise.
The Canadian Real Estate Association recently downgraded its forecast for 2026 home sales activity, citing a more assertive stance from the Bank of Canada. As a result, they anticipate a 5.2 percent decrease in home sales compared to the previous year. Recent drops in home prices in areas like Toronto are seen as indicators that it might be a favorable time to purchase a property despite the potential for further price decreases.
Overall, the prospect of rising interest rates and the potential impact on the real estate market are generating significant discussion and speculation among economists, traders, and industry experts.