The Bank of Canada has maintained its current interest rates since July 2023. While it is widely expected that rates will remain unchanged next week for the eighth consecutive time, there is a growing sentiment among economists and traders that the central bank may increase its trend-setting rate to address persistent inflation. The policy rate has been steady at 2.25 per cent since a quarter-point reduction in October 2025.
Bank of Canada Governor Tiff Macklem recently cautioned that there might be a need to raise borrowing costs if energy prices stay high, citing ongoing global energy market disruptions due to the unresolved conflict in the Middle East. Latest inflation data from Statistics Canada highlighted a surge in energy costs, although this increase has not yet significantly impacted other sectors of the economy. However, a recent Bank of Canada survey revealed that businesses are preparing for higher prices.
While a Bloomberg survey indicates an expectation for rates to remain unchanged, several key financial institutions, including the Bank of Montreal, RBC Dominion Securities, and Desjardins Group, have shifted their predictions from no change to a rate hike on October 28. Traders in the overnight swap market now suggest an 87 percent probability of a 25-basis point rate hike by the Bank of Canada next week, up from 70 percent earlier in the week.
Derek Holt, Scotiabank’s head of capital markets economics, supports the idea of a rate hike, stating that there is enough evidence to warrant such a move. Macquarie Group economist David Doyle also anticipates that the Bank of Canada will raise its policy rate by 125 basis points by the end of 2027, projecting a continuous cycle of rate hikes.
Leah Zlatkin, a licensed mortgage broker, echoes the sentiment that if there is a rate hike, it could mark the beginning of a cycle of rate increases. The potential rise in interest rates is expected to have a significant impact on the real estate market, affecting mortgage payments and buyer eligibility. This could lead to a decrease in home prices and a shift in market dynamics favoring buyers who can secure financing.
Industry experts warn that rising interest rates could exacerbate the challenges faced by the real estate market, which is already experiencing a downturn. They emphasize that higher rates could further dampen home sales and lead to a decline in property prices. The real estate sector is already witnessing a decline in sales, with buyer confidence at a historic low due to various economic uncertainties, including trade tensions and the impact of AI on employment.
As interest rates potentially rise, experts predict a gradual decrease in home prices over the coming months. Recent forecasts from the Canadian Real Estate Association indicate a downward revision in home sales projections for 2026, attributing the adjustment to a more hawkish stance from the Bank of Canada. Despite the current challenges in the housing market, some view the declining prices as an opportunity for buyers, emphasizing that qualifying for a property now could still be viable even if rates increase in the future.
