Chances of a Bank of Canada Rate Hike This Year Are Rising
OTTAWA — Financial markets are increasingly pricing in the possibility that the Bank of Canada could raise interest rates at its next meeting, although many economists believe the central bank will wait until early 2027.
The Bank of Canada has maintained its policy rate at 2.25 per cent for nearly a year while monitoring inflation and economic growth. Before its September 2 announcement, markets placed the probability of another rate hold at 94 per cent. However, expectations for the October 28 decision have now shifted to nearly even odds between a hold and a hike.
Economists say persistently high global energy prices, driven partly by the conflict in Iran, are contributing to concerns that inflation could remain elevated. The Bank of Canada has also warned that prolonged increases in oil prices could eventually affect a wider range of goods and services.
Rising expectations of future rate hikes have already pushed bond yields higher. Because lenders use bond yields to price fixed-rate mortgages and other long-term loans, borrowing costs could rise even if the Bank of Canada keeps its policy rate unchanged.
Claire Fan of RBC and Randall Bartlett of Desjardins both expect the central bank to remain on hold for the rest of 2026 before beginning to raise rates in early 2027. They noted that higher borrowing costs, weaker economic growth and renewed trade tensions with the United States could give the bank additional time before taking action.
The Bank of Canada will review upcoming inflation, employment and GDP data before making its October decision. It will also publish updated economic forecasts and surveys measuring consumer and business confidence.
While an October increase remains possible, economists say the decision will likely be close, with inflation risks balanced against growing concerns about Canada’s economic outlook.
