The Bank of Canada has maintained its interest rates since July 2023. Despite expectations of another hold next week, there is a growing sentiment among economists and traders that the central bank may increase its trend-setting rate to address persistent inflation. The current policy rate has remained at 2.25% following a quarter-point cut in October 2025.
Bank of Canada Governor Tiff Macklem has indicated the possibility of raising borrowing costs if energy prices continue to rise. Concerns over the unresolved conflict in the Middle East have contributed to the volatility in global energy markets. Recent inflation data from Statistics Canada highlighted the impact of surging energy prices, with businesses preparing for potential price hikes.
While a consensus in a recent Bloomberg survey leans towards maintaining rates, institutions like the Bank of Montreal, RBC Dominion Securities, and Desjardins Group have shifted their predictions from a hold to an increase on Oct. 28. Traders in the overnight swap market now place an 87% probability on a 25-basis point rate hike by the Bank of Canada next week, up from 70% earlier in the week.
Derek Holt, Scotiabank’s head of capital markets economics, and Macquarie Group economist David Doyle are among those anticipating a rate hike. They foresee a gradual increase in the policy rate over the coming months. Leah Zlatkin, a licensed mortgage broker, also expects a rate hike, suggesting it could signal the beginning of a rate hike cycle.
The potential rise in interest rates could have significant implications for the real estate market, affecting mortgage payments and buyer eligibility. Experts warn that increasing rates could further dampen the already struggling housing sector, leading to a decline in home prices. Market indicators show a decrease in home sales volume, with buyer confidence at a low due to various economic uncertainties.
As interest rates climb, experts predict a possible decline in home prices over the next few months. The Canadian Real Estate Association has revised its sales forecast for 2026 downward, citing a more cautious stance from the Bank of Canada. Recent drops in home prices in areas like Toronto have led some to believe it could be an opportune time to purchase a property, despite the potential for further price reductions in the future.