The Bank of Canada has kept interest rates unchanged since July 2023. While the consensus still leans towards maintaining the current rate, a growing number of economists and traders are now anticipating a potential increase to combat persistent inflation.
The policy rate has remained steady at 2.25% following a quarter-point reduction in October 2025. Bank of Canada Governor Tiff Macklem has indicated a possible need to raise borrowing costs if energy prices remain high due to ongoing conflicts in the Middle East affecting global energy markets.
Recent inflation data from Statistics Canada highlighted a surge in energy costs, although the impact on other sectors of the economy remains limited. However, the latest survey by the Bank of Canada revealed that businesses are preparing for higher prices.
Although a majority of respondents in a recent Bloomberg survey expect rates to remain unchanged, some major institutions like 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 now indicate an 87% probability of a 25-basis point rate increase by the Bank of Canada next week, up from 70% earlier in the week.
Derek Holt, head of capital markets economics at Scotiabank, and Macquarie Group economist David Doyle are among those forecasting a rate hike. They believe there is enough supporting evidence for an increase and anticipate a gradual rate hike cycle in the coming months.
Experts warn that higher interest rates could have a significant impact on the struggling real estate market, with variable-rate mortgage payments and new fixed mortgage rates expected to rise. The pool of potential homebuyers may shrink, leading to a shift in power from sellers to buyers who can secure financing. This could potentially result in a further decline in home prices.
The current state of the real estate market is described as weak, with home sales at a 25-year low. Economic uncertainties, including trade tensions and the impact of AI on jobs, have contributed to low buyer confidence. If interest rates rise, experts predict a gradual decline in home prices over the next few months.
The Canadian Real Estate Association recently downgraded its 2026 home sales forecast due to a more hawkish stance from the Bank of Canada, projecting a 5.2% decrease in sales compared to the previous year. Despite falling home prices in certain areas, experts suggest that now may be a good time to buy for those who qualify for financing, even if prices continue to drop in the future.